Had Economic Reforms had an Impact on India’s Industrial Sector?

Abstract

India began liberalizing its economy and in particular, it's manufacturing sector over a decade ago with the objective of making Indian Industries more efficient and globally competitive. Towards this end, the Government has been pursuing three sets of reforms:- one, deregulation, delicencing, decontrol and debureaucratisation of industrial licensing system; two, liberalizing foreign trade and currency transactions and three, instituting several measures to facilitate foreign direct investment inflows. All these measures were launched in the year 1991 and since then, further liberalizations have been introduced every year with each new budget. Now the question arises that had economic reforms had an impact on Indian industry? In order to answer this question, we examine trends in industrial production for the period 1950-51 to 1989-90 and 1990- 91 to 2011-12 using the latest available estimates of the Index of Industrial Production (IIP) released by the Central Statistical Organization and Economic Survey, Government of India. The results shows that the decade of 1950's, industrial efficiency was relatively higher; however, in the 1960's and 1970's there was severe retrogression in industrial growth. The period of 1980's was marked by industrial recovery. However, the pattern began reversing themselves in 1990's. But now, particularly after 2002-03, the Indian industry have started showing some signs of improvement in its performance, thus providing some evidence that these reforms seems to be working. I. Introduction Prosperity of any nation is extremely difficult without industrial development - is an well established truth for all the economies - developing or developed. Economic development and industrialization have became so closely integrated with each other that progress of an economy is now accessed from the success it has achieved in transformation from agricultural set up into a industrial set up. Through industrialization a situation is created whereby many industries are set up rapidly and ultimately backward areas are converted into economically developed areas and backward economies into developed economies. Industrialization, infact is a composite term which involves a number of structural changes such as changes in the production techniques, factor intensities, industrial employment and output. Industrialization propounds support of all sectors of the economy by skillfully organizing business enterprises, application of science and technology, canalizing specialized labour along with the division of labour, ever increasing role of electrical, electronic and computer application to achieve efficient activity etc. In this way industrialization is not only a way to increase output or national income but is a means of introducing modern technology and changing ways of life and finally the structure of the economy because of its self-reinforcing quality. But the all above cannot be executed without a well planned industrial policy. The industrial polity provides direction to the pace of industrialization and industrial development. Hence, to industrialize the country, India too, framed industrial policy which was amended, modified and reoriented several times. The First Industrial Policy was framed in 1948, followed by the Industrial Policy Resolution of 1956. The Industrial Policy Resolution of 1956 gave direction to the development of industry till 1973 which resulted in sound base of industrial development in the country. After 1973 the Industrial Policy was amended in 1977 with the objective of accelerating the pace of industrial growth, increasing productivity and income of industrial workers, promoting technological self reliance and increase in the level of employment. After 1977, several amendments were made in the industrial policy but the major landmark change came in 1991 when New Industrial Policy as part of New Economic Policy was introduced.