New Delhi: Despite inflation, a looming capacity constraint and inadequate job creation, India’s industrial growth will intensify over the next five years, predicts the Economic Survey.
Industrial growth in 2006-07 is pegged at 10% and the sector now contributes 26.4% of the country’s gross domestic product. While far lower than the 55% contribution of the services sector, the numbers don’t “adequately capturethe signs of industrial resurgence,” the government said in its annual state of the economy report.
The expected overall annual growth of industry in the current 10th Plan, which runs through March, at around 8.7% is likely to be short of the targeted growth rate of 10% for the period, but given recent performance of the sector, which grew at 10.6% in the first nine months of the current fiscal year, the 2007-12 target of 10% “appears eminently achievable,” the Survey says.
In 2006-07, nine manufacturing-intensive sectors grew at 10% compared to eight such sectors the year before. Some 11 sub-sectors improved their performance over the previous year, the survey said.
While six categories deteriorated in terms of their year-over-year performance, key sectors such as automotive, where the compounded annual growth rate was 16%, and textiles, where fabric production increased by 9.25%, benefited from a mix of policy shifts, the Survey said.
Pivotal industries, such as oil and natural gas, steel and pharmaceuticals expanded with mining and electricity also showing a minor upswing after long-standing declines. The chemicals sector was one of the sectors that contracted, the survey noted.
Crude production through December rose 6.03% to 25.4 million tonnes, while natural gas production over the same period fell 2.42%, making for an 1.85% overall increase in production.
Under-realizations in petroleum and diesel, public distribution scheme for kerosene and domestic cooking gas rose to Rs33,185 crore over April-September 2006-07, compared to Rs17,046 crore over April-June 2006-07.
“The government should think about rationalizing duty structure to address this issue in a more rational way,” said Ajay Arora, partner, Ernst & Young.
For sectors such as automobiles, the Survey says, the challenge is to innovate and upgrade to stay competitive. For its part, the government cut duty on raw material from 10% to 5-7.5% and set up the National Automotive Testing and R&D Infrastructure Project, a Rs1,718 crore effort to boost research.
But the auto industry, whose turnover grew from $3.1 billion (Rs13,640 crore) to $10 billion between 1997-2006, wants an across-the-board benefit for its research efforts.
“The right thing is to provide all automobile production with incentives and let the market chose what it wants,” said R. Seshasayee, president, Ashok Leyland Ltd, the country’s second-largest truck and bus manufacturer.
The Economic Survey offered up a surprise in foreign direct investment numbers. Software and allied industries, the traditional leaders inthis segment, lost their top spot in attracting FDI after four years at the helm,giving up their No. 1 slot to financial services.
“This year has been extraordinary for telecom companies and financial services. Strong supply and demand helped the financial sector, while individual deals among telecom firms helped them achieve good FDI growth,” said Alok Shende, a practice head at Frost & Sullivan, India.
In the first six months of 2006-07, ‘financial and other’ services attracted Rs6,955 crore or more than a third of the total Rs20,155 crore FDI inflows; followed by telecommunications at Rs3,835 crore and the software, electrical and electronics industry were at Rs3,601 crore.
The Survey has also raised the teledensity target from 500 million phones in 2010 to 650 million by 2012. For the first time, it has envisioned an ambitious 200 million rural phone target for 2012, which makes for rural tele-density of 25% against 1.9% today.
The document also anticipates wire-line customers will increase from 40 million to 66 million by 2012, in addition to 20 million broadband subscriptions by 2010.
Public sector enterprises reduced losses by Rs10,578 crore, from Rs83,725 crore in 2004-05 to Rs73,147 crore.
The 239 such enterprises employed 16.49 lakh workers, excluding casual workers, down from 17 lakh in the previous year.