"Industrial growth rate has lagged behind in the overall growth of

Model answer

Introduction

After 1991, India’s Gross Domestic Product rose mainly on services. Industry, especially manufacturing, grew, but more slowly, so its share of GDP stayed stuck near the mid-teens. That lag is the puzzle in the question. Recent policy — Make in India, easier foreign direct investment, the Insolvency and Bankruptcy Code, and the coming Goods and Services Tax — tries to close it. Capacity on paper is not the same as factories that hire.

Body

Why industry lagged GDP after reforms

Services (information technology, finance, telecom) faced fewer land–labour–power knots and rode a world demand boom; factories still needed plots, inspectors, and stable electricity.
Infrastructure: ports, freight, and quality power remained dear; inventory and downtime killed competitiveness against East Asia.
Land and labour: acquisition conflict and rigid industrial-labour law (and a thick inspector raj) pushed capital toward capital-intensive plants or toward services, not mass-employment lines.
Inverted duties and cheap imports, especially from China after it joined the World Trade Organization, undercut domestic capital goods and light manufactures.
Credit: small units stayed informal; banks preferred large names or retail; the later non-performing asset pile froze new project loans.
Skills did not match shop-floor need; engineers queued for services jobs.
Public-sector disinvestment was slow; many Navratna firms did not become globally aggressive manufacturers.
The National Manufacturing Policy (2011) already admitted the lag and aimed at about 25 per cent of GDP and 100 million jobs — a target that showed how far the post-reform path had drifted.

Recent industrial-policy changes (mid-2010s)

Make in India (2014) and easier FDI caps in defence, railways, construction, and single-brand retail tried to import capital and technology into factories, not only into software.
Industrial corridors (Delhi–Mumbai and others) and National Investment and Manufacturing Zones offered plug-and-play land.
Ease of Doing Business (single window, labour compliance easing on paper) cut some entry cost.
GST (from July 2017) promised one market and an end to cascading tax that had punished value-addition in manufacturing.
IBC (2016) aimed to recycle stuck steel and other plants instead of keeping zombie capacity.
Start-up India, Mudra, and MSME tax cuts in Budget 2017-18 addressed the small-unit layer.
Sector missions: textiles, electronics (Phased Manufacturing), food parks, and defence offsets.
A new industrial policy discussion (Department of Industrial Policy and Promotion, 2017) talked of technology, jobs, and sustainability together — still a draft, not a finished statute.

How far can this raise industrial growth?

GST plus IBC plus FDI can lift formal, tradable manufacturing if implementation is clean: input-tax credit must work, and resolution must be time-bound.
Corridors help coastal and hinterland plants only if power, water, and labour housing arrive with the fence.
They cannot by themselves fix farm-to-factory labour transition, State-level land politics, or a world of cheap Chinese surplus.
Without cheaper logistics and a skill pipeline, Make in India stays a logo on assembly of imported kits.
Policy is capable in direction, not yet proven in a sustained industrial growth rate above GDP.

Flow diagram

flowchart TD
  GDP[Post-1991 GDP] --> S[Services lead]
  GDP --> I[Industry lag]
  I --> CAUSE[Land labour power China credit]
  POL[Make in India GST IBC FDI] --> I
  POL --> IF[If logistics skills States deliver]

Conclusion

Industry lagged post-1991 GDP because services were easier, factories faced land, labour, power, China, and credit knots, and manufacturing’s GDP share did not rise. Make in India, FDI, corridors, GST, and IBC point the right way. They will raise industrial growth only if the single market, bankrupt-plant recycling, and real infrastructure arrive together — not as separate press notes.

Students also ask

Did liberalisation shrink industry in absolute terms?

No. Industry grew. It grew slower than services, so its share of GDP did not climb as in East Asia.

Is GST enough to fix the lag?

It helps a national market. Plants still need land, power, skills, and credit. Tax reform is one necessary piece, not the whole policy.

"Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period" Give reasons. How far the recent changes is Industrial Policy are capable of increasing the industrial growth rate?

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