Indian Manufacturing Industry: The Growth Episode of the Eighties

Growth of Indian manufacturing in the 80s was market-driven: policy changes enabled an expansion in output in response to growth in demand. Output growth led to productivity increase which came from material and labor savings, in that order of importance. Ten percent of the productivity increase was retained as increased profits and the rest reflected in falling prices (in relation to overall prices). This further stimulated demand. There were some structural changes, like growth of the factory sector at the expense of the cottage sector and an increase in the industrial sector’s ability to sustain its own growth. Industrial growth in itself did not worsen the b.o.p. situation. In fact, the balance of commodity trade improved, because output growth led to export growth which outpaced import growth. However, the relatively slow growth in imports was the result of Bombay High and may not be sustainable. Future strategy for industrial development should pursue growth and not multiple objectives. Other desirable outcomes would follow. Growth is most likely to be achieved by explicating the existing demand for consumer goods. This will pull up the demand for intermediate and capital goods also. Both industry and government should depend on volume growth for profits and revenues and keep prices and indirect taxes low. This is possible with continuous increases in productivity. Policies that expand markets, increase competition, promote technical progress, encourage human resources development and stimulate industrial investment will also increase productivity. A cautious view on imports seems advisable.