India’s current manufacturing boom is not broad-based, in contrast to a similar growth performance in the 1980s. This is revealed by production and wages (or employment) data for various industry groups.
In 2004-05 and 2005-06, the manufacturing sector grew at the rate of about 9 per cent per annum, accelerating from an annual growth rate of 6 per cent in 2002-03 and 7.4 per cent in 2003-04.
In April-May 2006, the index for industrial production (IIP) for manufacturing was 10.9 per cent higher than the index for the same months in the previous year.
If this, or a slightly lower, rate is sustained, then by the end of 2006-07 India would have achieved three consecutive years of over 9 per cent growth in manufacturing.
Between 1959-60 and 1963-64, a growth rate over 9 per cent was achieved for five years in a row. Another episode of consistent high growth was during 1993-94 to 1996-97 when the growth rate exceeded 10 per cent. The industrial base has now become relatively bigger since then.
At the level of broad industry groups, beverages and tobacco products, basic metals, machinery and transport equipment, and basic chemicals and chemical products attained a growth rate of about 10 per cent per annum or more in the last three years, whereas the food products group experienced a downward trend in production.
Cotton textiles and textile products recorded average growth rates of 9 and 19 per cent per annum respectively in the last three years, whereas the growth rates in leather and leather products group, metal products group and jute textiles group were 3 per cent per annum or less.
Production/sales data for different products reveals unevenness in industrial growth. Between 1999-2000 and 2004-05, the average annual growth rate of IIP for manufacturing was about 7 per cent.
But the growth rate in production among organised sector firms in this period was negative or a low positive for many industrial products (CMIE data).
Products whose output in the organised sector declined in the period 1999-2000 to 2004-05 include sewing machines, pressure cookers, luggage items, jute goods, industrial alcohol, calcium carbide, methyl ethyl ketone, fatty acids, maleic anhydride, industrial explosives and glass hollowares.
In some of these cases, the fall in domestic production was accompanied by a marked increase in imports, reflecting trade-induced industrial restructuring.
The recent industrial growth surge has contributed little to employment generation. Between 1995-96 and 2002-03, about one million jobs were lost in organised manufacturing (shown by employment data of Annual Survey of Industries, CSO).
In the next three years, despite rapid industrial growth, employment did not increase. In my view, there was, in fact, a marginal fall in employment by about one per cent.
In a number of industries, growth of sales in recent years has not been accompanied by a significant increase in wages and salaries, indicating thereby that employment has not grown, or has declined.
Sales of tyres and tubes companies increased by 28 per cent between 2001-02 and 2004-05, but wages and salaries grew by only 9 per cent in this period. A similar pattern is observed for ball bearings, cement, polymers, dyes and pigments, and synthetic yarn, to name a few.
There are cases where wages and salary payments declined while sales went up substantially. In companies manufacturing prime movers, for example, sales grew from Rs 10,044 crore in 2000-01 to Rs 17,537 crore in 2004-05, while the payment of wages and salaries came down from Rs 2,465 crore to Rs 2,060 crore in this period.
The contribution of exports to industrial growth is not adequately appreciated. The ratio of exports to sales in manufacturing companies was 9.6 per cent in 2001-02, which increased to 16.2 per cent in 2004-05 (CMIE data).
In this period, the increase in export earnings of the manufacturing companies was about Rs 1,24,000 crore, which was about one-third of the increase in sales. In a number of products, growth in production has been accompanied by substantial increases in exports.
Production of benzene increased from 4,24,000 tonnes in 2001-02 to 6,20,000 tonnes in 2004-05, and exports increased from 40,000 tonnes to 1,92,000 tonnes.
Some other products in which output growth in recent years has been accompanied by substantial increases in exports are synthetic resin, xylenes, phenol, and drugs and pharmaceuticals.
The draft approach paper to the Eleventh Five-year Plan recognises that for attaining a GDP growth rate of 8-9 per cent, the industrial growth rate has to be targeted at about 12 per cent per annum.
The paper draws attention to the importance of enhancing agricultural growth rate from current trend growth rate of 2 per cent to 4 per cent per annum in order to support the envisaged industrial growth rate from the demand side.
If agricultural growth does not accelerate, it would probably be necessary to export about half of the incremental industrial production to achieve a 12 per cent annual growth rate in manufacturing in the Eleventh Plan period.
Hence the importance of multilateral negotiations on market access and regional trade agreements.
The writer is professor, Institute of Economic Growth.
http://timesofindia.indiatimes.com/articleshow/msid-1930668,curpg-1.cms
In 2004-05 and 2005-06, the manufacturing sector grew at the rate of about 9 per cent per annum, accelerating from an annual growth rate of 6 per cent in 2002-03 and 7.4 per cent in 2003-04.
In April-May 2006, the index for industrial production (IIP) for manufacturing was 10.9 per cent higher than the index for the same months in the previous year.
If this, or a slightly lower, rate is sustained, then by the end of 2006-07 India would have achieved three consecutive years of over 9 per cent growth in manufacturing.
Between 1959-60 and 1963-64, a growth rate over 9 per cent was achieved for five years in a row. Another episode of consistent high growth was during 1993-94 to 1996-97 when the growth rate exceeded 10 per cent. The industrial base has now become relatively bigger since then.
At the level of broad industry groups, beverages and tobacco products, basic metals, machinery and transport equipment, and basic chemicals and chemical products attained a growth rate of about 10 per cent per annum or more in the last three years, whereas the food products group experienced a downward trend in production.
Cotton textiles and textile products recorded average growth rates of 9 and 19 per cent per annum respectively in the last three years, whereas the growth rates in leather and leather products group, metal products group and jute textiles group were 3 per cent per annum or less.
Production/sales data for different products reveals unevenness in industrial growth. Between 1999-2000 and 2004-05, the average annual growth rate of IIP for manufacturing was about 7 per cent.
But the growth rate in production among organised sector firms in this period was negative or a low positive for many industrial products (CMIE data).
Products whose output in the organised sector declined in the period 1999-2000 to 2004-05 include sewing machines, pressure cookers, luggage items, jute goods, industrial alcohol, calcium carbide, methyl ethyl ketone, fatty acids, maleic anhydride, industrial explosives and glass hollowares.
In some of these cases, the fall in domestic production was accompanied by a marked increase in imports, reflecting trade-induced industrial restructuring.
The recent industrial growth surge has contributed little to employment generation. Between 1995-96 and 2002-03, about one million jobs were lost in organised manufacturing (shown by employment data of Annual Survey of Industries, CSO).
In the next three years, despite rapid industrial growth, employment did not increase. In my view, there was, in fact, a marginal fall in employment by about one per cent.
In a number of industries, growth of sales in recent years has not been accompanied by a significant increase in wages and salaries, indicating thereby that employment has not grown, or has declined.
Sales of tyres and tubes companies increased by 28 per cent between 2001-02 and 2004-05, but wages and salaries grew by only 9 per cent in this period. A similar pattern is observed for ball bearings, cement, polymers, dyes and pigments, and synthetic yarn, to name a few.
There are cases where wages and salary payments declined while sales went up substantially. In companies manufacturing prime movers, for example, sales grew from Rs 10,044 crore in 2000-01 to Rs 17,537 crore in 2004-05, while the payment of wages and salaries came down from Rs 2,465 crore to Rs 2,060 crore in this period.
The contribution of exports to industrial growth is not adequately appreciated. The ratio of exports to sales in manufacturing companies was 9.6 per cent in 2001-02, which increased to 16.2 per cent in 2004-05 (CMIE data).
In this period, the increase in export earnings of the manufacturing companies was about Rs 1,24,000 crore, which was about one-third of the increase in sales. In a number of products, growth in production has been accompanied by substantial increases in exports.
Production of benzene increased from 4,24,000 tonnes in 2001-02 to 6,20,000 tonnes in 2004-05, and exports increased from 40,000 tonnes to 1,92,000 tonnes.
Some other products in which output growth in recent years has been accompanied by substantial increases in exports are synthetic resin, xylenes, phenol, and drugs and pharmaceuticals.
The draft approach paper to the Eleventh Five-year Plan recognises that for attaining a GDP growth rate of 8-9 per cent, the industrial growth rate has to be targeted at about 12 per cent per annum.
The paper draws attention to the importance of enhancing agricultural growth rate from current trend growth rate of 2 per cent to 4 per cent per annum in order to support the envisaged industrial growth rate from the demand side.
If agricultural growth does not accelerate, it would probably be necessary to export about half of the incremental industrial production to achieve a 12 per cent annual growth rate in manufacturing in the Eleventh Plan period.
Hence the importance of multilateral negotiations on market access and regional trade agreements.
The writer is professor, Institute of Economic Growth.
http://timesofindia.indiatimes.com/articleshow/msid-1930668,curpg-1.cms