India’s industrial growth, at its worst!

Industrial growth in India has plummeted to very low levels in recent years reminiscent of the crisis of 1991-1992 when the industrial sector had recorded abysmal sluggishness. Within the industrial sector, manufacturing sector has performed worse; its growth has remained well below its trend or long term growth rates in the last few years with the gap from the trend only expanding with each passing year. In the ‘Economic Outlook for 2013-2014’, the data provided by the Economic Advisory Council (EAC) to the PM points out that while the industrial sector grew at 3.5 per cent in 2011-2012 and 2.1 per cent in 2012-2013, it is projected to grow at 2.7 per cent in 2013-2014. The manufacturing sector has grown even slower at 2.7 per cent in 2011-2012, one per cent in 2012-2013 and is expected to grow at a meager 1.5 per cent in 2013-2014. Latest estimates released by the Central Statistical Organisation (CSO) reveal that industrial production grew by barely 0.1 per cent in Jan 2014.

Clearly, investment needs to be revved up for recovery in the manufacturing and industrial sectors. And for this to happen, the Union government needs to adopt a proactive approach to boost investor confidence which would in turn bolster industrial sector investment in the country.

 The successful ingredients for industrial and manufacturing sector growth can be found in the case of Gujarat. Huge inflows of investment into the state in recent years have led to a phenomenal annual average growth of 10.64 per cent and 10.89 per cent in the industrial and manufacturing sector respectively during 

2004-2005 to 2011-2012.

 How has Gujarat managed to achieve the aforementioned high rates of secondary sector growth?  A principal factor has been the ‘Vibrant Gujarat’ conclaves held in the state during the last decade or so. What are these ‘Vibrant Gujarat’ conclaves? Started by the Narendra Modi government and inaugurated by the then Deputy Prime Minister, L K Advani in 2003, the ‘Vibrant Gujarat’ summits are high profile meetings held once in every two years with a view to attract domestic, foreign and NRI-Gujarati investors into the state. So far six such biennial conclaves have been held by the state government.

 Before looking at the statistical evidence on industrialization in the state, certain legal and policy issues surrounding industrial investment in India need to be understood.

 Since 1991, economic reforms in India have substantially reduced industrial licensing requirements and removed restrictions on industrial investment. Under the Industries (Development and Regulation) Act (IDRA) 1951, an industrial licence is required by a company now only for manufacturing items falling under the list of compulsory licencing (5 items) and by a non-small scale company that intends to manufacture items reserved exclusively for the small scale sector (21 items). Additionally, two industries (atomic energy and railway transport) are reserved exclusively for the public sector.

 Apart from the 28 items above, all other areas/items have been delicenced. All that companies are required to do now is to file an Industrial Entrepreneur Memorandum (IEM) form in Part’A’ with the Department of Industrial Policy and Promotion (DIPP), Government of India. No further approvals are required. Subsequently, after actual commercial production begins, Part ‘B’ of the IEM form has to be filed by companies.

 Thus, Part ‘B’ of the IEM form (and not the Memorandum of Understanding) signed and bhoomi pujans!) would serve as a right proxy for the implementation of industrial proposals and actual industrialisation taking place in any state.

 How do investment numbers play out in NaMo’s Gujarat? To answer this question, instead of sourcing state government data on industrialisation, it would be better to look at the Union Government data for two reasons. One, they would not invite the charge of being biased in Modi’s favour in any way and two, they  would also facilitate meaningful inter-state comparisions of actual industrialisation.

 DIPP data from 2003 (when the first ‘Vibrant Gujarat’ conclave was held) till August 2013 (the latest period for which data is available) reveal two things: One, that Gujarat has done phenomenally well in terms of IEMs implemented (i.e Part B of IEM form filed with DIPP) and two, that Gujarat has emerged as the most favoured investment destination in the country in the last 10 years or so.

 Between 2003 and August 2013, IEMs implemented in India totaled Rs 2,85,422 crores; of this Gujarat notched a huge sum of Rs 1,10,772 crores. Thus, investment into Gujarat alone accounted for a staggering 38.80 per cent of the aggregate all-India investment.

 Meanwhile, Gujarat has also emerged as the most popular state for investment in the nation. DIPP data shows, that of all the states, Gujarat topped in terms of IEMs implemented between  2003 to August 2013. Its total investment worth Rs 1,10,772 crores was an astonishing 2.26 times of that of Maharashtra which stood a distant second with Rs 49,055 crores during this period. Andhra Pradesh, Madhya Pradesh and Uttar Pradesh were the other three major states in the Big Five Club in this interval.