Industrial Structure, Performance, and Policies

Development typically involves diversification of the economic structure from the one dominated by primary activities like agriculture to the sectors with greater labour productivity such as industry and services of progressively greater complexity. The Indian economy has witnessed a dramatic transformation with the share of agriculture in GDP coming down to 15 percent from 50 percent over the past decades while that of services going up to 60 percent. This service-oriented structural transformation, has been able to absorb only 26 percent of the workforce in services, leaving agriculture and allied activities to sustain nearly half of the workforce. The neglect of manufacturing (whose share in GDP stagnates around 16 percent) to underpin the structural transformation has cost the country dearly in terms of creating decent jobs directly and through its extensive backward and forward linkages. India is now trying to catch up with industrialization through the Make in India programme that has been further reinforced by the Atamnirbhar Bharat campaign launched in 2020 to accelerate recovery of the economy in the aftermath of the pandemic. ISID research under this broad theme analyses the emerging policies, patterns of structural transformation and industrial organization, and industrial performance.

India like many other developing countries is experiencing premature deindustrialisation manifested by the stagnation of manufacturing in the share of value-added and employment at a very low peak. This is worrisome because India is way behind the average per capita income at which demand for manufacturing goods loses its relative importance and that of services takes off. Moreover, a country with a huge labour surplus can gainfully employ the labour force released from primary sector through a robust growth in manufacturing. Manufacturing generally shows higher productivity growth and the diffusion of gains through linkage effects and lower unit costs triggers a virtuous growth path with increasing demand for existing and newer goods and services. Existing literature and policy papers express concerns about the departure of India’s growth trajectory from the stylised patterns of development. Policies by successive governments aimed to address the problem of jobless growth referring to the desired path of manufacturing-led growth. However, most of these discussions remained largely confined to a normative discourse of why manufacturing ought to be the ‘engine of growth.’ This perhaps missed out on the objective analyses of the demand pattern that emerged over time at various income levels. In short, the assumed trajectory needs to be revisited with a closer look at the emerging demand patterns at the household level. This research programme would aim to address the central question of pre-mature deindustrialisation looking into evolving consumption and investment patterns both at the micro and macro levels, identifying new dimensions of domestic demand and exports, and the way they explain the current trajectory of growth. The changing pattern of consumption in different income segments would be linked with the evolving distribution of income that might have contributed towards a service-led growth path.

Research Team: Dr Satyaki Roy

Collaborator: ICSSR

Status: [Ongoing], project launched in 2022-23; time frame: 24 months.

The IIDR would be the first in a new series of biennial flagship reports launched by ISID, to mark the India@75. It would draw upon in-house analytical work, wide-ranging consultations with noted experts, and policy discussions to build a compelling narrative on criticality, opportunities, challenges, and policy reforms needed for industrial transformation of India at the current juncture of its development trajectory as it seeks to emerge not only as one of the biggest economies in the world, but one that is also a global leader in inclusive and sustainable development. While drawing lessons from the experiences of the successful industrializers of the West and the East in terms of strategic interventions deployed, it would also be cognizant of local specificities and initial conditions besides the changed external context that has turned less benign with recent trends of protectionism, stalled multilateral trade negotiations and the global slow down following the COVID pandemic. In support of the Make-in-India and Aatmanirbhar Bharat programmes, the Report will identify the opportunities of creating decent job opportunities for India’s youthful workforce through empowering MSMEs, providing an enabling framework to budding entrepreneurs and start-ups, improving the quality of FDI inflows, and unleashing the large national champions to emerge as competitive players on the global markets through leveraging technology, including the Industry 4.0. It would also present scenarios on alternative industrial structures in terms of job creation and economic growth, developed in the framework of computable general equilibrium models. It will also offer analysis and thoughts on green industrialization to enable India to contribute to the global sustainability targets. It will be backed by extensive policy advocacy through high-level policy dialogues, popular columns, and social media.

Research Team: Prof Nagesh Kumar and the entire faculty.

Collaborator: ICSSR

Status: [Ongoing], project launched in 2022-23; time frame: 18 months.

According to National Accounts Statistics (NAS), public sector currently contributes about a quarter of GDP in India. Given this universe of India’s public sector undertakings (PSUs), the current debate on the role of public sector in India deserves a closer look. Gleaning through the historical trajectory of policy perspectives since independence until the current phase of market-driven reforms, we see a marked shift in the assigned role of public sector in the Indian economy. Once considered to be the “temples of modern India,” the role of public sector was premised on the context of nation building after independence. The paradigmatic shift suggested reforms specific to public sector: free entry of private sector firms in industries reserved for public sector enterprises (PSEs), disinvestment of government shareholdings and listing PSEs in stock exchanges with associated requirement of changes in governance structure, withdrawing budgetary support from ‘sick’ PSEs, and encouraging retrenchment of labour to attain commercial viability. In this changed context, PSEs are put to test to assess if they manage to survive the rough weathers of competition and get through the standard parameters of efficiency norms. The project will review and examine the continued relevance of PSEs in India and ways and means to enhance their efficiency and competitiveness to harness their potential and role in the industrial transformation of the country.

Research Team: Dr Satyaki Roy and Dr Santosh Das.

Status: [Ongoing], project started 2021-22; time frame: 16 months.

The significance of factor endowments due to predictable effects on the industry structure mandates due consideration in formulating the industrial and trade policy. In the backdrop of the changing use of factors of production, namely labour and capital, and also the change in their relative use, the study provides estimates of factor ratios, factor proportions, and factor endowments over a period of time, covering more than two decades of economic liberalisation in the Indian economy. The computational emphasis has been to widen the measurement scope with improved precision. Using a combination of techniques, the research study attempts to sharpen the existing understanding of the structural relationship of the factors of production. The main contribution of this work is in the (i) parallel analysis on organised manufacturing, unorganised manufacturing, and unorganised services, and (ii) simultaneous consideration of capital and labour endowments. The research project is sponsored under IMPRESS, an initiative of the Ministry of Education, Government of India and implemented by the ICSSR. Dr Anjali Tandon is the project director.

There have been apprehensions on the disproportionate holding of wealth by the top business houses in India during the post-independence period. Such ownership of wealth not only provides business power, but also economic power. Drastic regulatory changes occurred during this period. Currently, competition assessment is based on narrowly defined markets and quantifiable evidence with political and social repercussions that are generally ignored despite the fact that economic power is at the heart of antitrust. This study found that the top business groups still control a major portion of output and profit. Their involvement in M&As is substantial, which has resulted in capacity and market expansion, and vertical linkages. From the policy point of view, apart from the general implications of M&As reflected in market shares and market competition, the synergy derived through ownership is important in efficiently utilising the resources under a common umbrella of business. This will not be reflected when competition is assessed in narrowly-defined markets. The study was sponsored by the ICSSR. Dr Beena Saraswathy was the project director.

The objective of the research project was to (i) identify continuities and departures in India’s production pattern, investment and employment trends, degree of engagement through trade, FDI and technology assimilation, and the status of infrastructure and human capabilities; and (ii) comprehend an industrialisation strategy given the constraints and emerging opportunities.
The report is organised in four sections. Section I deals with structural issues, and consists of six chapters. These present structural changes in the organised manufacturing sector, developments in the large private corporate sector, competition and concentration, implications of financial liberalisation on industrial finance, and issues relating to adoption of Industry 4.0. Five chapters in Section II analyse the developments in external trade with specific reference to competitiveness, import intensity, domestic value addition, trade agreements and India’s participation in global production network. Foreign direct investments and technology transfer are the subject matter of the four chapters in Section III. The last section deals with regional development issues with focus on spatial distribution of workers, SEZs, and industrial corridors. Based on the evidence generated, each chapter presents suggestions for addressing the lacunae in the industrial, trade, and investment policies that have been followed so far, towards strengthening India’s industrial development efforts. The ICSSR sponsored study was undertaken by a team of the Institute’s faculty with Prof M R Murty as the programme director and Prof T P Bhat as the co-director.
The programme consisted of the following papers:

  • Economic Reforms and Market Competition in India: An Assesment, Dr Beena Saraswathy
  • Import Intensity of India’s Manufactured Exports – An Industry Level Analysis, Dr Mahua Paul and Dr Ramaa Arun Kumar
  • India and Industry 4.0, Prof T P Bhat
  • Industrial Structure, Financial Liberalisation, and Industrial Finance in India, Dr Santosh Kumar Das
  • Outward FDI from India: Review of Policy and Emerging Trends, Dr Reji K Joseph
  • Review of Industrial and Development Corridors in India, Prof H Ramachandran
  • Special Economic Zones: Location and Land Utilisation, Dr Surya Tewari
  • Structural Asymmetry in Global Production Network: An Empirical Exploration, Dr Satyaki Roy
  • Foreign Direct Investment and Innovation Activities in Indian Manufacturing Industries, Dr Sanjaya Kumar Malik
  • Inbound M&A in India: Issues and Challenges, Prof K S Chalapati Rao and Prof Biswajit Dhar
  • Impact of Preferential Trade Liberalisation on India’s Manufacturing Sector Trade Performance: An Analysis of India’s Major Trade Agreements, Dr Smitha Francis
  • Is Domestic Value Addition a Source of Export Sophistication: A Case Study of India, Dr Anjali Tandon
  • Liberalisation, Structural Change and Productivity Growth in Indian Organised Manufacturing Sector, Dr R Rijesh
  • Non-Financial Private Corporate Sector and India’s Manufacturing Sector: A Comparative Study of Domestic and Foreign Companies, Prof M R Murty and Prof K V K Ranganathan
  • Outward FDI as a Strategy for Technology Catch-Up: A Case Study of Two Indian Automotive Firms, Dr Reji K Joseph
  • Spatial Distribution of Workers in Manufacturing India – 1991 and 2011, Prof H Ramachandran and Priyanka Tiwari
  • Strengthening Export Competitiveness through Domestic Policies, Dr Ramaa Arun Kumar and Prof Biswajit Dhar
  • Technology Transfer through FDI in India: Mode, Extent, and Prospects, Dr Swati Verma.

The objective of the study was to examine the impact of firm import on manufacturing output based on company-level data from Prowess IQ database. The selected manufacturing firms were distributed across capital goods, intermediate goods and consumer goods manufacturing firms. The firms, as a whole, comprise an unbalanced panel of 1707 firms and balanced panel of 570 firms. The empirical analysis is carried across the use-based product firms during the period 2000–2017. The trend analysis reveals a significant increase in imports across all manufacturing firms. The intermediate goods-producing firms, which have the largest sample size in terms of a larger share in the use of production inputs including R&D, were found to be the largest consumers of imported inputs from abroad. The largest imported items were raw materials followed by capital goods and finished goods. This indicates the growing demand for imported inputs by the Indian manufacturing sectors. In terms of annual growth rates, most of the production indicators show double-digit growth rates. However, the period- wise analysis indicated a slowdown in manufacturing in terms of sales, wages, import, etc., since the onset of the financial crisis in 2008. The panel regression based on Fixed Effects revealed a significant positive impact of imports on firm output.

A comparative analysis across groups also revealed that the intermediate sectors largely benefited from imported inputs. Among all groups, there was strong evidence of a significant positive impact of raw materials on firm output in recent decades. Moreover, the internal technological capability, in terms of domestic R&D, was found to have a positive impact on output. Thus, the results validated the presence of dynamic gains from international trade on Indian manufacturing firms since liberalisation. The study was part of a research project titled “India’s Import from China: An Analysis of Impact on Indian Manufacturing Sector,” sponsored by the Ministry of Commerce & Industry, Government of India to Indian Institute of Foreign Trade (IIFT), New Delhi. The project report is submitted in March 2019. Dr. R. Rijesh was the Principal Researcher.

This study examined the nature and impact of technology import on Indian manufacturing using firm level data. The basic objective was to examine the impact of technology import in the form of embodied (capital goods) and disembodied (foreign exchange spent on royalties, technical fees, licencing, etc.) on manufacturing output, productivity and exports, during 1995–2016. The empirical estimation is based on panel regression analysis for the overall manufacturing as well as four use-based classifications of industries. The study reported evidence of dynamic gains in manufacturing from the import of technology. The study was sponsored by the ICSSR and the final report was submitted to the Council in November 2018. Dr. R. Rijesh was the Principal Researcher.

The pharmaceutical industry’s structure is changing due to the impact of pathways chosen by the firms for global integration of the industry. The study sought to understand the nature of emerging constellations of interactions between large and small firms in the area of manufacturing of bulk drugs and formulations. The broad objectives of the study are:

  1. To determine the relationship and nature of foreign and domestic firms with small firms through the channels of outsourcing, contracting, takeovers and integration into a global pharmaceutical production and innovation networks and the implications for learning innovation and competence building.
  2. Contribution of outsourcing and contracting in the manufacture of pharmaceuticals to technology transfer and upgrading of capabilities;
  3. Role played by the policies for regulation of FDI, price control, competition, cluster upgrading, public procurement, R&D support, intellectual property protection, standards of drug approval, quality control, clinical trials, etc.

Field investigations were carried out to study the implications for the processes of capability building for production, operations and manufacturing innovation of the emerging practices of large foreign and domestic firms. The two-year study was sponsored by the ICSSR. The draft report was completed in November 2017 and Final Report was submitted to the ICSSR in January 2018. Prof. Dinesh Abrol was the Project Coordinator.

The study includes various aspects of the current phase of neoliberal globalisation and the way it resembles the idea of imperialism. The paper, as part of the larger study, is primarily looking into how theories of imperialism changed over time and the socio-historical perspectives that caused conceptual departures. Starting from liberal theories to that of Marxian tradition the paper underlines the historically contingent nature of the idea of imperialism. It informs the theoretical continuities and departures in the notion of imperialism, especially in the context of the present state of deterritorialized and decentered capitalism. The asymmetries and division of world have become far more complex than what it was in the early twentieth century and the study aims to capture the emerging complexities of global hierarchy. The study is part of the ICSSR research programme “A Multi-Dimensional Study of Imperial Order and its Journey towards Neoliberal Imperialism under Globalisation” and is being undertaken by Dr Satyaki Roy; the draft report was completed in March 2014.

Employment has found a place among the major objectives in the development agenda for India right from the initiation of development planning. During the initial two decades of planning, employment was seen both as a way to utilize labour for development and to prevent emergence of unemployment. Employment was seen as a corollary of economic growth. Economy, however, grew at a lower rate than envisaged and labour force grew at a higher rate than projected. An effort was, therefore, made in mid-1970s, to introduce an employment-orientation in the pattern of growth by laying special emphasis on employment intensive sectors. Also, special programmes of self-employment and short-term wage employment in public works were introduced.

With the availability of comprehensive data from the NSSO surveys, periodical assessment of the extent and trends of employment and unemployment became possible and was attempted in each of the Five Year Plan documents starting with the latter half of 1970s. But the fact that employment needs to be included as a concrete goal of development planning was, however, recognized in mid-1980s when employment targeting was included as part of the plan exercise. The exercise was reviewed over the next decade.

Starting with the 1980’s, the Indian economy moved to a higher growth path and the trend was further strengthened with the introduction of economic reforms in 1991. It was higher growth that was, by and large, to be relied upon for achieving the employment objective. However, the experience of the 1990’s belied all expectations. A renewed urgency to bring employment back into focus formed the basis of a new approach to employment in the Tenth Plan (2002-2007). By the middle of the first decade of the new millennium it seemed that expectations regarding growth of employment were more or less fulfilled and that employment may not pose such a great challenge. However, the prospects of employment generation seem to have been overestimated as they were based on elasticities observed in recent past which were suspected to reflect a rather ‘spurious’ growth of employment.

Further, the outcomes of planner’s efforts to incorporate employment in growth strategy have largely been disappointing in the Indian case. Though employment growth has taken place, it is of poor quality in terms of productivity and income. As a result, employment growth has not always been accompanied by corresponding decline in incidence of poverty. It is in the above context that the study attempts:

  • A critical analysis of the approaches to employment in Indian Five Year Plans with a view to examine how far the idea of mainstreaming employment in growth strategy was followed;
  • An account and assessment of macro-economic and sectoral policies and special employment programmes in terms of their impact on employment;
  • A comprehensive account of the growth of employment over the last four decades in sectors, sub sectors and rural-urban location;
  • An analysis of the dynamics of qualitative and structural dimensions of employment in terms of sectoral composition, and employment status categories and organised-unorganised segments; and,
  • Development of a framework for an employment-oriented growth strategy and policy interventions required for it.

The report was prepared and submitted to ICSSR under the National Fellowship Programme by Prof. T.S. Papola in July 2013.

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