An industry is a collection of companies that are linked by their primary business activities. There are dozens of industry classifications in today's economies. Typically, industrial classifications are grouped into larger categories known as sectors. As it leads to largely distinct categories with simple relationships, industrial classification is useful for economic analysis. It is a crucial topic in the Economy syllabus for the UPSC Examination. The article explains Industry in all possible aspects of the UPSC Examination.

What is an Industrial Sector?

• The industrial sector is a sector of the economy that is made up of companies that help other companies manufacture, ship, or produce their goods.
• The industrial sector is classified as a secondary sector because the goods and services it provides are sold to other businesses rather than to consumers directly.
• Since this industrial sector is reliant on purchasing from other businesses, supply and demand in other sectors often drive its growth or contraction.

Industrial Policies

• Industrial Policy is a formal declaration undertaken by the Government that outlines the government’s general policies for industries.
• It is characterized by actions and policies of the government which impact the industrial development of a country.
• The Industrial Policy Resolution of 1948 outlined the broad policy roles of the state in industrial development both as an entrepreneur and authority.

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Industrial Policy Resolution, 1948

• Industrial Policy Resolutions 1948 tells about the broad contours of the policy, which outlined the role played by the state in industrial development both as an entrepreneur and authority.
• It led to the development of India as a mixed economic model.
• It led to the classification of large industries into four categories as Strategic Industries, Basic / Key industries, Important Industries and other industries which were called Public Sector; Public-cum-Private Sector; Controlled Private Sector, and Private & Cooperative sector.
• This policy was also known as the socialization of vacuum because it pictured that the state would invest resources only in those sectors of the economy which were unoccupied (partially or fully) by the private sector.

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Industrial Policy Resolution, 1956

• The Industrial Resolution Policy 1956 was developed due to the changes that occurred due to the economic and political developments in different spheres that called for changes in industrial policy in a short period of operation of the 1948 Industrial Policy.
• It was based upon the Mahalanobis Model of growth which advocated that emphasis should be laid on the heavy industries, which can increase the economic output of the country.
• Mahalanobis' model suggested the dominance of the heavy industries.
• It laid the foundation for India’s second five-year plan and Industrial policy Resolution 1956, which paved the way for the development of the Public Sector and licence raj.

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Industrial Policy Resolution, 1980

• Industrial Policy Resolution of 1980 intended to promote the concept of economic federation.
• It focused on raising the efficiency of the public sector and reversing the trend of industrial production of the past years and
• It believed in faith in the Monopolies and Restrictive Trade Practices (MRTP) Act and the Foreign Exchange Regulation Act (FERA).

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Industrial Policy Resolution, 1985 & 1986

• The government passed the industrial policy resolutions in 1985 and 1986 in order to diversify and open the Indian market.
• Both of these policies loosened foreign investment rules and altered the MRTP Act by simplifying the industrial licensing process.

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New Industrial Policy, 1991

• The Government of India announced its new industrial policy 1991 on July 24, 1991, with the goal of correcting the distortions and weaknesses in the country's industrial structure that had developed over four decades, raising industrial efficiency to international levels, and accelerating industrial growth.
• Government monopoly was reduced by decreasing the number of industries reserved for the public sector from 17 (as per 1956 policy) to 8 industries such as arms and ammunition, atomic energy, coal, mineral oil, mining of iron ore, manganese ore, gold, silver, mining of copper, lead, etc.
• The Industrial Licensing Policy abolished the industrial licensing given to all industries except for the 18 industries, which was further reduced to 6 industries in 1999.

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Disinvestment

• When governments or organizations sell or liquidate assets or subsidiaries, this is known as disinvestment.
• Divestment or a reduction in capital expenditures (CapEx) are both examples of disinvestment.
• Disinvestment is done for a variety of reasons, including strategic, political, and environmental considerations.

Types of Disinvestment

Disinvestment can be classified into the following types :

Minority Disinvestment

• It is a type of disinvestment where the government retains a majority stake in the company, mostly greater than 51%, and ensures that the management control stays with the government.
• Minority disinvestment of institutions started in the early and mid-90s.

Majority Disinvestment

• It is a type of disinvestment where the government, post disinvestment, retains a minority stake in the company, and completely it sells off its majority stake.
• Generally, majority disinvestments have always included strategic partners.
• These partners could be other CPSEs themselves, such as BRPL to IOC, and KRL to BPCL.

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Current Disinvestment Policy

• The government brought in the New Public Sector Enterprise (“PSE”) Policy for Atmanirbhar Bharat to decrease its presence in the PSEs across all sectors of the economy.
• As of January 24, 2022 government has received Rs 9,330 crore from the disinvestment of CPSEs through the Offer for Sale (OFS) route and the sale of shares through the stock exchange.
• The government has revised its disinvestment estimate for 2021-2022 to ₹78,000 crores.

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MSME Sector

• The MSME sector forms the core of the Indian economy and has always acted as the bulwark for the Indian economy, providing it strength and resilience to tolerate global economic shocks and adversities.
• This sector’s contribution to the economy includes 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output.
• Throughout the country, it has around 63.4 million units. The MSME sector constitutes around 45% of the overall exports from India and provides employment to around 120 million persons.

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Ease of Doing Business

• The Ease of Doing Business is an index that is published by the World Bank that measures aggregate figures that include different parameters which define the ease of doing business in a country.
• India has emerged as one of the most appealing countries, not only for investments but also for doing business.
• In the 'World Bank's Ease of Doing Business Ranking 2020,' India leaped from 142nd (2014) to 63rd (2019).
• Following an examination into "data inconsistencies" in its 2018 and 2020 editions (published in 2017 and 2019, respectively) and suspected "ethical problems" involving bank staff, the World Bank announced it will stop publishing the "Doing Business report."

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Make in India

• Make in India is a government-led initiative to encourage companies to develop, manufacture, and assemble products in India, as well as to incentivize dedicated manufacturing investments.
• The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India, is leading the initiative.

*To know more about this, click Make in India

Start up India

• The Startup India scheme was first announced by Prime Minister Narendra Modi in 2015.
• It focuses on three core areas such as simplification and handholding, funding support and incentives, industry-academia partnership, and incubation.

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Index of Industrial Production (IIP)

• The Index of Industrial Production (IIP) is a composite indicator that compares the volume of production of a basket of industrial products during a particular period to that of a base period.
• The first official attempt to compute the Index of Industrial Production (IIP) was made in India long before the first international advice on the issue.
• The responsibility for compiling and publishing IIP was given to the Central Statistical Organisation (now known as National Statistics Office (NSO)) when it was established in 1951.

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Core industries

• Core Industries (core sectors) of the economy are the main or the key industries in the economy.
• There are eight such sectors in India.
• The industries included in the eight-core sectors are coal, crude oil, natural gas, refinery products, fertilizer, steel, cement, and electricity.

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Manufacturing Sector in India

• The manufacturing sector in India is significantly important for a developing nation like India that depends on manufacturing from growth and development.
• The top sub-sectors of the Indian economy that form the bulk of the manufacturing sector are food products, basic metals, rubber and petrochemicals, chemicals, and electrical machinery.
• The manufacturing sector in India has underperformed in recent decades as compared to other countries, accounting for only 16-17% of GDP.

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Importance of Manufacturing Sector

• Manufacturing industries not only contribute to the modernization of agriculture, which is the backbone of our economy, but they also help to minimize people's heavy reliance on agricultural income by creating jobs in secondary and tertiary sectors.
• Industrial development is a prerequisite for our country's unemployment and poverty to be eradicated. In India, public sector industries and joint ventures were founded on this principle.
• It also attempted to reduce regional inequalities by building industries in tribal and underdeveloped areas.

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Challenges of Manufacturing Sector

• Increased rigidity in the manufacturing labor market and strict labor laws has created disincentives for employers to create jobs.
• According to the World Bank, the Industrial Disputes Act has resulted in lowering employment in organized manufacturing by about 25%.
• The highest contributor to GDP growth is the service sector but it employs less than 30% of the workforce, whereas the agriculture sector, employs 45% of the population but contributes only 15% to the GDP growth.

Significance of Industrial Sector

• The economy undergoes structural change as a result of industrial development.
• It means that our economy's reliance on agriculture will be reduced.
• The Indian economy has a large skilled workforce that is currently unemployed.
• The establishment of industries creates the capability of generating large-scale employment opportunities.
• As industrialization progresses, the capital goods industry begins to thrive as well.
• This promotes investment and growth while also assisting in furthering economic growth.
• As industrialization spreads, the demand for economic infrastructures such as roads, dams, banking, insurance, and communication facilities grows, resulting in their expansion.
• As people's quality of life improves, so does the demand for social infrastructures, such as health and education facilities, which leads to their development.
• Industries contribute to the country's GDP. The industrial sector's share of GDP has risen steadily over the years, from 16.6% in 1950-51 to around 30% in 2011-12. (at constant prices).
• Industries contribute to the economy in the following ways:
  • As the capital goods industry develops, the country will be able to produce a variety of goods in large quantities at a low cost.
  • It aids in the construction of infrastructure goods such as dams, railways, and other items that cannot be imported.
  • The industrialization has aided our country's defense goods self-sufficiency.

Performance of Industrial Sector

• The leading indicator for industrial performance in the country is the index of industrial production (IIP), which has the base year of 2011-12.
• The current IIP series, which is based on 399 products/product groups and is compiled on a monthly basis, is divided into three broad categories: mining, manufacturing, and electricity.
• As an index, the IIP measures both production and growth.
• India's industrial production increased 1.3 percent year over year in January 2022, up from a downwardly revised 0.7 percent increase in December, but fell short of market expectations of 1.5 percent growth.
• Manufacturing output and mining output increased at a faster rate.
• On the other hand, Industrial output growth stalled to a halt in January after a 7.8% increase in December 2020.
• Production increased 23.5 percent year over year from April to September in 2021.

Conclusion

India is a desirable location for manufacturing investments from around the world. Several mobile phones, luxury, and automobile brands, among others, have established or are considering doing so in the country. India's industrial sector has the potential to reach $1 trillion in revenue by 2025. With a GDP of US$ 2.5 trillion and a population of 1.32 billion people, the implementation of the Goods and Services Tax (GST) will turn India into a common market, attracting investors.

FAQs

MCQs

1. Which sector forms a major part of India's industrial backbone?

A. Services
B. MSMEs
C. Agriculture
D. Real estate

2. What is the main objective of the 'Make in India' initiative?

A. Promote foreign imports
B. Boost domestic manufacturing
C. Increase agricultural productivity
D. Privatize public enterprises

3. What does IIP measure?

A. Export performance
B. Industrial productivity
C. Inflation
D. Stock market index

4. Which of the following industries is part of India's core industries?

A. Steel
B. Pharmaceuticals
C. Information Technology
D. Tourism

5. Which policy is associated with disinvestment in PSEs?

A. Industrial Policy Resolution, 1956
B. New Economic Policy, 1991
C. Agricultural Policy, 2000
D. Urbanization Policy, 1995

GS Mains Questions and Model Answers

Q1: Discuss the significance of MSMEs in driving economic growth and industrial development in India.

Answer: MSMEs are crucial to India's industrial and economic development, contributing to GDP, employment, and exports. They foster entrepreneurship and innovation, particularly in rural and semi-urban areas. Challenges such as credit access, regulatory burdens, and technological inefficiencies hinder their full potential, but government initiatives like the MSME Act and Skill India have helped improve their competitiveness.

Q2: Evaluate the impact of industrial policies on India's economic development since 1991.

Answer: The industrial policies of liberalization, privatization, and globalization since 1991 transformed India’s economy, reducing state control, encouraging private investment, and boosting FDI. These policies enhanced industrial productivity, brought in foreign technologies, and modernized several sectors like IT, telecom, and pharmaceuticals. However, challenges like uneven growth, infrastructure deficits, and labor market issues remain.

Q3: Analyze the role of Public Sector Enterprises (PSEs) in India's industrial growth.

Answer: PSEs have historically played a crucial role in India's industrialization, particularly in sectors like steel, petroleum, and power. They laid the foundation for heavy industries and infrastructure development. However, inefficiencies, overstaffing, and political interference have led to calls for privatization and disinvestment, which aim to improve competitiveness and financial health.

Previous Year Questions on Industrial Sector

1. UPSC CSE Prelims 2018

Question: Which of the following is a core industry of the Indian economy?
A. Real estate
B. Coal
C. Software development
D. Pharmaceuticals

Answer: B

Explanation: Coal is one of India's core industries, along with steel, cement, and electricity.

2. UPSC CSE Mains 2019 (GS Paper 3)

Question: "Discuss the impact of the New Economic Policy of 1991 on India's industrial growth."

Answer: The New Economic Policy of 1991 brought significant changes to India's industrial sector. It reduced state control, allowed private sector participation, and liberalized foreign investments. This led to a boom in sectors like IT, telecom, and manufacturing. However, the reforms also created challenges like regional disparities, labor market rigidities, and environmental concerns.