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CHAIRMAN's DESK

"Apart from the large but somewhat dormant domestic market, export of manufactured articles may prove to be a potent force driving the growth of this sector. It must be despite an appreciating Rupee and a generally sluggish world market, the Indian merchandize exports have managed to reach a double-digit growth figure in the recent weeks." The time has come for the Indian economy to consolidate the gains of a decade of economic liberalization. In the last ten years, the Indian economy has seen the state vacate the large economic space once occupied by it. It has also seen a progressive lowering of the wall of protectionism and progressive integration with the global economy. Most importantly, it has managed to cope with the highs and the lows of an open market economy and its typically recurrent business cycles. These are new lessons of economic liberalism learnt to fully exploit the opportunities offered by the new world based purportedly on advocacy of free flow of resources across boundaries. The solid socio-economic foundation, built during the years of economic planning, has helped India in its mission of accelerating the process of economic development and of speedy improvement in the lot of its people. The legacies of a high quality technical education system and a well-diversified industrial base have stood us in good stead in fending for ourselves in the liberalized economic system. India has emerged as one of the leading centres of Information Technology related services in the world and has also shown a great promise in developing sophisticated manufacturing processes in terms of both the soft and the hardware of such activities. In the first flush of the liberalization in the early nineties, there had been a visible improvement in all the departments of the economy - the commodity and the service sectors alike. The ascendance of the service sectors as the major growth driver in the years that followed - is well known by now. At the present stage of India's economic development, the decline in the importance of the manufacturing sector has been the source of a great deal of consternation to the policy planners. The importance of the manufacturing sector lies in its role as a provider of material goods to the economy and as a provider of employment to its people. Firstly, the low level of living of the Indian populace would mean a substantial requirement of articles of mass consumption to be produced in the factories and workshops of India. Secondly, the existence of a very high level of disguised and open unemployment in a large rural population with low levels of literacy would indicate the need to generate employment with low skill hierarchy. Such surplus rural/semi-urban labour can be productively used only in the manufacturing industries, which are known to create a steady demand for such unskilled/semi-skilled labour. In this connection, it needs to be noted that the burgeoning IT sector benefits only highly literate and numerate population - far removed from the teeming millions in India's villages and towns. The other service sector activities mostly in the unorganized sector can absorb a part of the population but such activities generally lead to low compensation and very low levels of productivity. The long-term solution to India's problems of unemployment and low-income levels, therefore, lies in the acceleration of growth in all-industrial activities - both agro-based and industrial. Now, the good news is that the recent upswing in India's economy shows definite signs of a revival in its manufacturing and other secondary activities. For the third quarter in a row, the growth figures are higher than the previous ones. The Hl of this fiscal has returned a higher IIP 5.8% growth rate as compared to 5.4% rate last fiscal. More importantly, the greatest contribution to the accelerated rate has come at the behest of the Manufacturing sector recording an increase of 6.3% against a 5.5% growth in H1 of FY2002-03. The use-based classification brings out another favourable trend in manufacturing activities in the recent months. The data show a sustained growth at around 9% in the capital goods industry during the last two quarters of the current fiscal. The fact that this level of growth has been maintained over the closing months of the last quarter through the current year is proof enough that investment activities may indeed be picking up in right earnest. The other indicator of a possible turnaround in investment and industrial capacity creation is the sudden upsurge in Initial Public Offer (IPO) brought out in the Indian Bourses. In FY2001-02 there were just seven public issues in the primary capital market raising less than Rs 1000 crore. The following year saw an even dismal performance with just three public issues raising Rs 792 crore. In contrast, in the first six months of the current fiscal seven companies raised Rs 1868 crore, Maruti Udyog being the largest fund raiser with an issue of a little less than Rs 1000 crore. If this trend continues into the H2 of FY2002-04 and carries on further into the next time period, then probably we will witness a resurgent in Indian industrial sector. Apart from the large but somewhat dormant domestic market, export of manufactured articles may prove to be a potent force driving the growth of this sector. It must be mentioned that despite an appreciating Rupee and a generally sluggish world market, the Indian merchandize exports have managed to reach a double-digit growth figure in the recent weeks. It needs to be mentioned further that the small-scale sector of the Indian manufacturing industry has been spearheading the growth in exports even after the economic reforms. This is one area where the policy planners should concentrate. The aim should be to remove the external constraints to efficiency suffered by these units such as a woefully deficient physical infrastructure, high-administered cost of some critical inputs, high cost of capital etc. This once again brings us to the central question of state as the prime mover in creating physical and social infrastructure through the length and breadth of the economy. The lack of private participation in investment projects have perhaps shown that the reforms put in place till date are not adequate to lure private investors into this area of long-gestation investment projects. The answer lies partly in plugging the loopholes and partly in the government actively promoting public?private partnership in such projects so as to spread the risk thin. It would also mean strengthening the essential institutional superstructure of regulators. Meanwhile, we all wait for the day when industrial activities become central to India's development process and the commodity sectors share the glory along with the emerging service and knowledge based economic activities. That will also be the time for the rise of the steel sector because the fortune of this industry is intimately linked to that of the material intensive secondary activities of manufacturing and capital formation. ( J P Singh Joint Secretary, Ministry of Steel & Chairman, JPC) (This is excerpted from JPC Bulletin Oct'03)