Special Correspondent

Weak infrastructure slowed growth of manufacturing sector

India’s growth not as per accepted transition theory

NEW DELHI: Economic think tank the National Council of Applied Economic Research on Sunday said unfavourable labour market and weak infrastructure slowed the growth of manufacturing in India.

The NCAER, in its report for February, stated that India’s annual growth of 6.4 per cent between 1991-92 and 2007-08 was led by the services sector, which grew at 8 per cent, followed by industry at 6.3 per cent, and agriculture at 3 per cent, which was unlike the typical transition phase of a developing country.

“Two of the most significant factors thwarting India’s manufacturing sector growth include the lack of infrastructure, including power and the labour market rigidities.”

The NCAER said these obstacles came in the way of the unskilled, labour-intensive manufacturing sector growing at the rate of other developing countries, including China.

“India’s growth experience is not a good fit with the accepted transition theory which postulates that a developing country moves towards an economy with a relatively large share of services once its industrial sector has outgrown the underdeveloped phase.” it said.

Share in GDP

The share of services in the gross domestic product grew from 50 per cent in 1991-92 to 63 in 2007-08, the Council noted. The NCAER highlighted that about half the Foreign Direct Investment (FDI) between April 2000 and November 2008 ($16.4 billion) had been in the services sector, with an insignificant share in labour-intensive manufacturing.

Policy reforms

While policy reforms had immensely benefited the services sector, the same did not hold true for industry, the report said.

However, the Council expressed the hope that the coming years would see a “blue-collar” manufacturing revolution in India and thus more inclusive growth.