7

Industry

Overview Table 7.1 : Annual growth rate of industrial

The impressive growth of the industrial production in major sectors of industry
sector, propelled by robust growth in (Based on the index of industrial production)
manufacturing has continued unabated during Base: 1993-94=100
the current year so far. Year-on-year industrial (per cent)
growth of 10.6 per cent in the first nine months
Period Mining & Manufa- Electricity Overall
of 2006-07 was the highest recorded since Quarrying cturing
1995-96. In seven of the eight months of the
Weights 10.47 79.36 10.17 100.00
current year, the year-on-year growth of the 1995-96 9.7 14.1 8.1 13.0
manufacturing sector was in double-digits 1996-97 -1.9 7.3 4.0 6.1
(Table 7.1). 1997-98 6.9 6.7 6.6 6.7
1998-99 -0.8 4.4 6.5 4.1
7.2 In the current year until November, the 1999-00 1.0 7.1 7.3 6.7
year-on-year growth of the overall Index of 2000-01 2.8 5.3 4.0 5.0
2001-02 1.2 2.9 3.1 2.7
Industrial Production (IIP), which measures the 2002-03 5.8 6.0 3.2 5.7
absolute level and percentage growth of 2003-04 5.2 7.4 5.1 7.0
industrial production (Box 7.1), as well as its 2004-05 4.4 9.2 5.2 8.4
2005-06 1.0 9.1 5.2 8.2
three subsectors, viz. mining, electricity and 2006-07# 3.8 11.5 7.3 10.6
manufacturing, in April-November 2006 was # (April-November)
higher than that in comparable period of the Source : Central Statistical Organisation.
previous year. Manufacturing sector
contributed 91.1 per cent to this improved and the electricity sectors compared to the
performance. There was a moderate previous year, but such growth continued to
turnaround in the growth rates of the mining lag far behind the overall IIP growth.

Fig. 7.1 Growth Trends of Overall IIP, Intermediate and Capital Goods

Capital goods Interm ediates Overall IIP

30.0

25.0
Rate of Growth (%)

20.0

15.0

10.0

5.0

0.0

-5.0

M onth(s)

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 Table 7.2 : Growth rates of industrial production by use-based classification
(Base : 1993-94 = 100) ( per cent)

Sector Weight 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Apr.-Nov.

2005-06 2006-07

Basic Goods 35.5 3.7 2.6 4.9 5.4 5.5 6.7 6.1 9.3
Capital Goods 9.3 1.8 -3.4 10.5 13.6 13.9 15.8 16.2 16.1
Intermediate Goods 26.5 4.7 1.5 3.9 6.4 6.1 2.5 2.5 10.9
Consumer Goods Of which 28.7 8.0 6.0 7.1 7.1 11.7 12.0 13.3 9.7
Durables 5.4 14.5 11.5 -6.3 11.6 14.4 15.3 14.2 12.5
Non-Durables 23.3 5.8 4.1 12.0 5.8 10.8 11.0 12.9 8.7
IIP (Index of Industrial Production) 100 5.0 2.7 5.7 7.0 8.4 8.2 8.3 10.6

Source : Central Statistical Organisation

7.3 Under the use-based classification of and intermediate goods sectors between 2005
industries, growth signals were mixed (Table and 2006, there was a deceleration of growth
7.2 and Figure 7.1). Year-on-year, during April- in consumer goods industries. Encouragingly,
November, while growth accelerated in basic however, except in the months of September
Table 7.3 : Growth rates of industrial production by broad groups of manufacturing
(Base : 1993-94=100)
(per cent)
Code Industry group Weight 2004- 2005- Apr May Jun July Aug Sep Oct Nov Apr-Nov.
(NIC- 05 06 2005- 2006-
1987) 06 07
20-21 Food products 9.1 -0.4 2.0 -7.4 -6.1 -3.7 26.9 -0.8 11.3 -9.2 11.3 -4.7 1.9
22 Beverages, tobacco and 2.4 10.8 15.7 13.9 14.6 10.2 11.8 18.2 18.7 2.4 11.0 17.4 12.5
related products
23 Cotton textiles 5.5 7.6 8.5 9.3 14.0 10.8 14.3 13.5 14.7 9.7 18.3 11.3 13.0
24 Wool, silk and man-made 2.3 3.5 0.0 12.7 12.4 -0.4 2.7 9.9 3.7 -4.0 18.2 -0.8 6.6
fibre textiles
25 Jute and other vegetable 0.6 3.7 0.5 -6.6 2.5 3.6 -5.1 5.5 0.2 -0.9 9.7 2.6 1.0
fibre textiles (except cotton)
26 Textile products (including 2.5 19.2 16.3 12.6 18.0 13.1 28.1 14.8 4.2 -0.4 16.0 20.5 12.9
wearing apparel)
27 Wood and wood products; 2.7 -8.4 -5.7 -7.9 -19.6 -15.2 26.4 11.6 11.2 10.4 9.3 -3.5 2.4
furniture and fixtures
28 Paper & paper products 2.7 10.5 -0.9 9.0 17.2 10.2 7.3 -2.1 8.8 3.9 15.6 5.2 8.4
and printing, publishing &
allied industries
29 Leather, and leather & 1.1 6.7 -4.8 -24.4 -2.4 -3.7 -3.9 -0.3 5.6 -13.4 17.7 -0.1 -3.7
fur products
30 Basic chemicals & 14.0 14.5 8.3 14.5 14.5 4.1 9.6 9.9 11.0 0.9 8.4 11.7 9.1
chemical products
(except products of
petroleum & coal)
31 Rubber, plastic, petroleum 5.7 2.4 4.3 4.3 12.1 10.8 9.2 13.0 15.7 7.7 23.2 2.8 11.9
and coal products
32 Non-metallic mineral 4.4 1.5 11.0 18.5 8.6 18.2 13.3 6.6 16.3 11.1 17.7 8.3 13.7
products
33 Basic metal and alloy 7.5 5.4 15.8 21.4 21.4 19.8 20.0 14.3 20.0 20.9 25.4 15.6 20.4
industries
34 Metal products and parts, 2.8 5.7 -1.1 4.6 -9.7 7.8 6.7 10.1 11.5 25.1 -1.5 -2.2 6.8
except machinery and
equipment
35-36 Machinery and equipment 9.6 19.8 12.0 8.8 13.9 18.2 15.8 23.3 14.2 2.1 17.3 10.8 14.1
other than transport
equipment
37 Transport equipment 4.0 4.1 12.7 13.8 25.9 21.2 22.8 11.2 12.4 4.4 21.8 12.5 16.3
and parts
38 Other manufacturing 2.6 18.5. 25.2 33.8 37.8 18.9 15.9 7.9 -10.6 -18.5 23.0 18.9 10.4
industries
Growth rates are estimated over the corresponding period of the previous year.
Source: Central Statistical Organisation.

Industry 137

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 Box 7.1: The historical development of the all india index of industrial production (IIP)

Index of Industrial Production (IIP) is a single representative figure to measure the general level of industrial
activity in the economy. The Office of Economic Advisor, Ministry of Commerce and Industry made a maiden
attempt of compilation and release of the IIP with base year 1937. With the inception of Central Statistical
Organisation (CSO) in 1951, the responsibility for compilation and publication of the IIP was vested with CSO.
The IIP covers mining, manufacturing and electricity sectors only. It excludes construction, also considered
part of the secondary sector. IIP has been revised from time to time in 1946, 1951, 1956, 1960, 1970, 1980-81
and 1993-94 by shifting the base; by reviewing the coverage of items; and by improving the technique of
construction to reflect the changes in industrial structure
IIP, with 1937 as the base, covered 15 industries accounting for more than 90 per cent of the total production
of these industries. The weights were allocated on the basis of total value of output during the base year.
Cotton textiles; jute manufacture; sugar and steel had 78 per cent of the IIP weight. Subsequently, the base
year was shifted to 1946 but the scope continued to be restricted to mining and manufacturing sectors,
comprising of 20 industries with 35 items. The ‘value added by manufacture’ in the base year obtained from
the First Census of Manufactures, India 1946 was used for determining the weights. Cotton textiles, jute
manufacturer, steel, sugar and coal accounted for 82.7 per cent of the total weight.
The IIP with 1951 as the base and compiled by CSO had 88 items. The items were classified according to the
International Standard Industrial Classification (ISIC) 1948 of all economic activities. Weights were allotted to
various items in proportion to ‘value added by manufacture’ in the base year 1951. This index had three
sectors: mining, manufacturing and electricity with weights of 7.16 per cent, 90.68 per cent and 2.16 per cent
respectively. The index was further revised to base year 1956 on the recommendation of the working group
constituted by CSO. It covered 201 items (198 of these were in the manufacturing sector), classified according
to the Standard Industrial and Occupational Classification of All Economic Activities. The weights were assigned
to the various items on the basis of ‘value added by manufacture’, in the base year as per Census of
Manufactures 1956. The weights of mining, manufacturing and electricity sector for this series of IIP were 7.47
per cent, 88.85 per cent and 3.68 per cent respectively. The index with the year 1960 as base year covered 312
items in the monthly index and an additional 124 items in an annual index. The index continued to be the
weighted average of the components, with weights proportional to ‘value added by the manufacture in the
base year.
The index numbers with base 1970 covered 352 items comprising 61 items for mining; 290 for manufacturing
and 1 for electricity sector. The weighting diagram for the manufacturing sector was based on the results of
Annual Survey of Industries (ASI) 1970, whereas for the mining, the net value added by that sector as estimated
by Indian Bureau of Mines, and in case of electricity, the net value added in 1970 as available from the White
Paper on National Income, were used. For compiling the index, monthly production reports were collected by
CSO from 17 source agencies, which in turn collected data from the production units.
The IIP with 1980-81 as the base for the first time included 18 items of the small-scale sector in the compilation
of the index. Further, in respect of items like machinery, machine tools etc. where the reporting was in value
terms, the Wholesale Price Index (base 1981-82) for the concerned category was used as deflators. The index
has 350 items in all comprising 61 items from mining; 288 items from manufacturing and 1 from electricity.
The current series of IIP has 1993-94 as its base. The new series has 543 items clubbed into 287 item
groups comprising 285 items groups from manufacturing and one each from mining and electricity. The index
relating to Mining and Quarrying sector is supplied by the Indian Bureau of Mines, Nagpur and that is dovetailed
with manufacturing and electricity indices compiled by CSO. The sectoral weights are allocated on the basis
of Gross Value Added for 1993-94 as published in the National Account Statistics. As per the norms laid down
by Special Data Dissemination Standards (SDDS) of IMF, the quick estimate of IIP of any month is being
released within six weeks from the reference month according to an advance release calendar. This index is
subsequently revised twice, namely, in the next month and the following third month.

and October 2006, year-on-year growth for 7.4 At a two-digit level of disaggregation
capital goods has been in double digit and across the various segments of the
higher than overall IIP growth every month manufacturing sector (Table 7.3), as many as
since February 2004. Furthermore, a nine sectors, with a combined weight of 44.2
sharp pick-up in growth was per cent in IIP, grew at over 10 per cent, on an
observed in intermediate goods in the current average, during the period April–November
year. 2006. During the comparable period of the

138 Economic Survey 2006-2007

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previous year, there were eight such sectors Highlights of some industries
accounting for a weight of 48.1 per cent.
Leather and leather & fur products have Automotive
exhibited a negative rate of growth during the 7.6 Automotive industry, comprising of the
current year so far (April-November). automobile and auto-component sectors, is
one of the key segments of the economy with
7.5 Eleven sub-sectors registered an
extensive forward and backward linkages with
improvement in performance over the
other key segments of the economy. Installed
comparable period of the previous year, while
capacity of the industry has been growing at a
performance in the other six groups compounded annual rate of over 16 per cent
deteriorated. Sectors like food products, jute since 2001-02. The automobile industry
and other vegetable fibre textiles, wood and produced a wide variety of vehicles including
wood products, and leather and leather & fur 17 lakh four wheelers (passenger cars, light,
products have either shown a decline or a medium and heavy commercial vehicles,
moderate growth. Lacklustre growth in these multi-utility vehicles such as jeeps), and over
industries, which are relatively more labour 80 lakh two and three wheelers (scooters,
intensive, is reflected in the slow growth of motor-cycles, mopeds, and three wheelers)
employment in manufacturing. in 2005-06 (Table 7.4).
Table 7.4 : Automobile production
(Numbers in 000)

Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

(till Sept’06)

Passenger cars 513 564 609 842 961 1,046 594

Multi-utility vehicles 128 106 112 146 249 263 144
Commercial vehicles 157 163 204 275 350 391 237
Two wheelers 3,759 4,271 5,076 5,625 6,527 7,600 4,155
Three wheelers 203 213 277 341 374 434 264
Total 4,759 5,316 6,280 7,229 8,461 9,735 5,394
Growth in per cent (-)2.00 11.70 18.60 15.12 16.80 14.97 18.04
Source : Ministry of Heavy Industries & Public Enterprises (Department of Heavy Industries)
7.7 Delicensing and opening up to FDI has mark in 2003-04 and increased to US$2.28
not only helped this sector to develop in the billion in 2005-06. The industry exported as
domestic economy but also to clock much as 17.7 per cent and 16.3 per cent of its
impressive pefromance in the export market. domestic production of three wheelers and
Automobile exports crossed the US$1 billion passenger cars in 2005-06 (Table 7.5)
Table 7.5 : Automobile export
(Numbers in 000)

Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

(till Sept’06)
Passenger cars 23 50 71 126 161 170 98
Multi-utility vehicles 4 3 1 3 6 5 3
Commercial vehicles 14 12 12 17 30 41 23
Two wheelers 111 104 180 265 367 513 332
Three wheelers 16 15 43 68 67 77 62
Total 168 185 307 479 620 806 519
Growth in per cent 20.24 9.74 65.35 55.98 31.25 28.03 27.43
Source : Ministry of Heavy Industries & Public Enterprises (Department of Heavy Industries)

Industry 139

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7.8 The auto component industry, standards of vehicular safety, emission and
comprising of around 500 firms in the organized performance standards, and (c) finalisation
sector and more than 10,000 firms in the small of the Automotive Mission Plan (AMP) 2006-
and unorganized sector has been one of the 2016 for making India a preferred destination
fastest growing segments of Indian for design and manufacture of automobile and
manufacturing. It has the capability to automotive components.
manufacture the entire range of auto parts and Textiles
has rapidly added to its capacity base. The
7.11 Production of fabrics increased by 9.25
turnover of the sector has grown from US$3.1
per cent in 2005-06 and, in the current year
billion to US$10.0 billion between 1997-98 and
upto November 2006, by 8.20 per cent over
2005-06. In 2005-06, the sector’s exports grew
the corresponding period of the previous year
by 28 per cent to reach US$1.8 billion. The
(Table 7.6). In US dollar terms, the value of
industry has also made considerable progress
exports increased by 21.8 per cent in 2005-
on the quality front as borne out by international
06 and 11.7 per cent in the current year up to
recognition received by several producers and
September 2006 (Table 7.7).
by the direction of extports. The major
destinations of export for this sector are USA 7.12 Nevertheless, Indian textile sector’s
and Europe, which belong to the category of performance continues to lag substantially
high Accepted Quality Level (AQL). behind that of China even in the post –quota
era. China’s export of textiles and clothing
7.9 The major challenges that the auto
reached a new peak of US$115.51 billion in
industry is presently facing is with respect to
2005 which accounted for 24.07 per cent of
its capability to innovate and upgrade in order
global trade. In comparison, India’s share was
to remain competitive (both qualitatively and
a miniscule 3.37 per cent amounting to
price wise) in the international market.
US$16.14 billion. The Indian textile sector
7.10 The initiatives taken by the Government continues to suffer from ageing machinery,
in 2006-07 to give a boost to the automobile inadequate infrastructural facilities (power and
sector include: a) reduction in the duty of raw ports), and rigid labour laws. The continuing
material to 5-7.5 per cent from the earlier 10 scheme such as the Technology Upgradation
per cent, b) setting up of the National Fund (TUFS) and the Scheme for Integrated
Automotive Testing and R&D Infrastructure Textile Parks launched last year are aimed at
Project (NATRIP) at a total cost of Rs.1,718 addressing some of these problems. Under
crore for enabling the industry to usher in global the Technology Upgradation Fund Scheme

Table 7.6 : Production of fabrics

(in millions of square metres)
Sector 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 April-November
2005-06 2006-07(P)

Mills 1,670 1,546 1,496 1,434 1,526 1,656 1,085 1,234

(4.2) (3.7) (3.6) (3.4) (3.4) (3.3) (3.3) (3.5)
Power looms 30,499 32,259 33,835 34,794 37,437 41,044 27,105 29,471
(including Hosiery) (75.8) (76.8) (80.6) (82.1) (82.5) (82.8) (82.6) (83.0)
Handlooms 7,506 7,585 5,980 5,493 5,722 6,108 4,111 4,278
(18.7) (18.0) (14.2) (13.0) (12.6) (12.3) (12.5) (12.1)
Others 558 644 662 662 693 769 513 513
(1.4) (1.5) (1.6) (1.6) (1.5) (1.6) (1.6) (1.5)

Total 40,233 42,034 41,973 42,383 45,378 49,577 32,814 35,496

Note : Figures in parentheses indicate share in output
P – Provisional
Source : Office of Textile Commissioner, Mumbai

140 Economic Survey 2006-2007

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 Table 7.7 : Export of textiles
(in US$ million)
Item 2003-04 2004-05 2005-06 April-August
2005-06 2006-07(P)

Ready made garment 5,786.37 6,024.39 7,752.44 3,085.34 3,461.88

Cotton Textiles 3,599.95 3,544.16 4,493.20 1,650.53 2,071.09
Wool & Woollen Textiles 337.98 417.09 473.91 197.42 204.89
Manmade Textiles 1,821.24 2,050.73 2,000.08 777.20 907.83
Silk 545.21 594.56 691.83 279.06 292.75
Handicrafts 1,085.36 1,013.85 1,239.26 524.11 501.46
Coir & Coir manufacture 77.77 105.56 134.25 53.99 59.44
Jute goods 242.43 276.25 294.60 127.33 128.79

Total 13,496.31 14,026.72 17,079.57 6,694.97 7,628.13

Source : Foreign Trade Statistics of India (Principal Commodities and Countries) DGCI&S, Kolkata

(TUFS), launched on April 1, 1999, loans of the previous year due to a reduction in the
amounting to Rs.14,901 crore have been international prices. Destination wise, the major
disbursed to 6,739 applicants. Under the market for Indian gems and jewellery in terms
Scheme for Integrated Textile Park (SITP) of importance are USA, UAE, Hong Kong,
launched in the last financial year to develop Belgium, Israel, Japan, Thailand, UK,
25 Integrated Textile Parks (covering weaving, Singapore and Korea. USA itself accounts for
knitting, processing and garmenting sectors) 29 per cent of the total exports from India in
of international standard, project proposals this sector.
worth Rs.2,411 crore, (of which assistance
7.15 In the Foreign Trade Policy updated as
from Government is Rs.862.55 crore) have
on April 7, 2006, Government has extended
been sanctioned. These projects are likely to
the following facilities to this sector:
be completed by March 2008.

Import of gold of 8 carat and above has
Gems and Jewellery been allowed under the replenishment
scheme subject to the import being
7.13 The gems and jewellery sector,
accompanied by an Assay Certificate
contributing about 15 per cent of India’s total
specifying the purity, weight and alloy
merchandise exports during 2005-06,
content.
continued to maintain India as the largest
cutting and polishing centre of diamonds in
Duty-free import entitlement of
the world both in terms of quantity and value. consumables for metals other than gold
In terms of carat, India’s share in this sector and platinum at 2 per cent of FOB value
is about 80 per cent of the world market. Gold of exports during the previous financial
jewellery and coloured gem segments year.
accounts for about 15 per cent and 5 per cent,
Duty-free import entitlement of
respectively of India’s gem and jewellery export commercial samples fixed at Rs. 30,000.
in value terms.
Duty-free re-import entitlement for
7.14 Total exports of gems and jewellery in rejected jewellery fixed at 2 per cent of
2005-06 was US$15.5 billion, up from US$13.4 FOB value of exports.
billion and US$10.7 billion in the previous two
Cutting and polishing of gems and
years. During the period April-September jewellery to be treated as manufacturing
2006, however, exports declined marginally by for the purpose of exemption under
0.66 per cent from the corresponding period Section 10A of the Income Tax Act.

Industry 141

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Import of precious metal scrap/used tonnes (Table 7.8). Additional capacities of four
jewellery has been allowed for melting, million tonnes have been commissioned in
refining and re-export of jewellery. this sector in the current year. The apparent
However, such imports will not be allowed consumption of finished (carbon) steel at 31.45
through hand baggage. million tonnes was 9.8 per cent higher than

Exporters of gems and jewellery have that in the comparable period of the previous
been allowed to export jewellery on year. Export of finished (carbon) steel during
consignment basis and export cut and this period grew by 10.9 per cent to 3.50 million
polished precious and semiprecious tonnes.
stones for treatment and re-import as per 7.19 The increasing presence of the Indian
rules. steel companies in the global market with a

Value addtions norms for different wide-ranging export basket including complex
categories of gems and jewellery and technologically sophisticated product is a
products have been reduced. pointer to the increased competitiveness of
7.16 Steps have been taken to encourage this industry. This is mainly due to
creation of training infrastructure to impart skills improvement in the operational parameters of
in jewellery designing, participation of the Indian plants effected through
exporters in international fairs, and establishment of new state-of-the-art plants
arrangement of buyer-seller meets abroad to and their continuous modernization and
showcase the quality and variety of Indian implementation of de-bottlenecking and
products under the Market Development technology upgradation schemes in the older
Assistance and Market Access Initiative plants. Most importantly, energy efficiency of
scheme of the Government. the plants in terms of coke rate and power
consumption has improved through better
7.17 Based on traditional strength in operating practices, use of better quality raw
craftsmanship, India has emerged as one of materials (e.g. imported coking coal)
the key players in the gem and jewellery sector. accessed from global sources and optimum
However, in a global business worth US$80 processing of raw materials (e.g. washing of
billion annually, India’s market share continues coal, benefication and sintering of iron ore).
to be less than 3 per cent. In the coming years The average techno-economic parameters of
factors like changing tastes, competition from an Indian plant vis-à-vis international bench-
other luxury goods, growth of market share of marks show that the Indian plants are fast
substitutes like synthetic diamonds and non- catching up with the best in the world.
precious metals, and growth of cutting and
polishing industries in mining countries are 7.20 Domestic market prices of steel, in
likely to affect this sector. In order to increase general, declined throughout 2005 and the
its share, the country has to graduate towards trend persisted till the start of fiscal 2006-07.
the higher end of the value chain through However, during the first three quarters of the
technological upgradation. The industry will current fiscal steel prices started firming up.
also need to explore and develop virgin The price rise has been stronger in case of
markets which are likely to be high growth flat products, where most of the key items saw
economies. The share of organized sector has marked rise during October 2006 from a year
to increase further to ensure better marketing, ago. For non-flat steel, the rise has been of a
quality management and professionalisation. lesser intensity as compared to the flats. The
increase has been mainly due to the strong
Steel domestic demand for steel and increase in
7.18 The impressive growth of the steel cost of raw materials like zinc and ferro-alloys.
sector continued for the fourth consecutive In continuation of the policy thrust to ensure
year. During April-December 2006, production availability of steel and price stability,
of finished (carbon) steel, year-on-year, Government reduced the customs duty on
increased by 9.7 per cent to reach 35.65 million alloy/stainless steel and non-alloy steel items

142 Economic Survey 2006-2007

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 Table 7.8 : Production, consumption, export and import of finished carbon steel and pig iron
(in million tonnes)

Item 2003-04 2004-05 2005-06 2005-06 2006-07

(April-December)
PRODUCTION
Finished Carbon Steel
Main producers 15.19 15.61 16.21 11.79 12.75
(5.60) (2.79) (2.79) (8.10)
Secondary producers 21.77 24.44 28.33 20.70 22.90
(12.91) (12.28) (15.90) (10.60)
Total 36.96 40.06 44.54 32.49 35.65
(9.70) (8.38) (11.20) (9.70)
Pig Iron
Main Producers 0.97 0.63 1.01 0.79 0.65
(-12.70) (-35.30) (61.12)) (-17.60)
SecondaryProducers 2.80 2.60 3.69 2.55 2.80
(-32.90) (-6.96) (41.68) (10.00)
Total 3.76 3.23 4.70 3.33 3.45
(-28.70) (-14.24) (45.44) (3.50)
EXPORTS
Finished Carbon Steel 4.84 4.38 4.48 3.16 3.50
(7.30) (-9.38) (2.21) (10.90)
Pig Iron 0.52 0.40 0.44 0.30 0.20
(-17.64) (-24.13) (11.95) (-7.00)
IMPORTS
Finished Carbon Steel 1.54 2.11 3.85 2.87 2.70
(1.98) (36.94) (82.55) (-6.00)
Pig Iron 0.00 0.01 0.00 0.00 0.00
(100.00) (300.00) (62.50)
APPARENT CONSUMPTION
Finished Carbon Steel 31.17 34.39 39.19 28.63 31.45
(7.88) (10.33) (13.94) (9.80)
Pig Iron 3.26 2.79 4.14 2.92 3.22
(-29.67) (-14.46) (48.19) (10.30)
Note: Figures in parenthesis indicate variation over the previous year.
Source : Joint Plant Committee.

to 7.5 per cent and 5 per cent respectively with exporter. During 2005-06, however, there was
effect from April 1, 2006. Customs duty on a deceleration in the growth rate of the sector
alloy and stainless steel was further reduced to 8.2 per cent from 14.5 per cent in 2004-05.
to 5 per cent from January 22, 2007.
Basic Chemicals
Chemical, Petrochemical and
7.22 The production of major basic
Pharmaceutical
chemicals comprising alkalies, inorganic and
7.21 The chemical sector, comprising basic organic chemicals, pesticides and dyes and
chemicals and its products, petrochemicals, dyestuffs was up by 3.61 per cent from 7.38
fertilizers, paints, gases and pharmaceuticals, million tonnes to 7.64 million tonnes between
accounted for about 17.6 per cent in the output 2004-05 and 2005-06. However, the output of
of manufacturing sector, 13-14 per cent in total basic chemicals showed a marginal decline
exports and 8-9 per cent in total imports of the of 2.22 per cent, year-on-year, in the first half
country in 2005-06. This well-diversified of the current fiscal (April-Sept) vis-à-vis that
sector, covers more than 70,000 commercial in the comparable period last year. Within
products and is intensive in knowledge, capital basic chemicals, growth of dyes and dyestuffs,
and power. This sector has made good and inorganic chemicals accelerated from over
progress during the last five years, and turned 7 per cent in 2005-06, to over 10 per cent in
from a net importer in the 1990s to a net the first half of the current year.

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Petrochemicals international regulatory approvals for their
plants from agencies like USFDA (USA), MHRA
7.23 The production of petrochemicals
(UK), TGA (Australia), and MCC (South Africa).
which mainly comprise of synthetic fibres,
India has the largest number of USFDA-
polymers, elastomers, synthetic detergent
approved plants for generic manufacture.
intermediates and performance plastics
increased by 1.61 per cent from 7.35 million Considering that the pharmaceutical industry
tonnes in 2004-05 to 7.47 million tonnes in involves sophisticated technology and
2005-06. Output of elastomers, synthetic stringent “Good Manufacturing Practice”
detergent intermediates and performance (GMP) requirements, major share of Indian
plastics was higher by 13.40 per cent, 13.93 pharma exports going to highly developed
per cent and 12.39 per cent, respectively, in western countries bears testimony to not only
2005-06. The overall growth performance of the excellent quality of Indian pharmaceuticals
petrochemicals improved to 7.97 per cent in but also price-competitiveness. Indian
the first half of the current year. companies are now seeking more Abbreviated
New Drug Approvals (ANDAs) in USA in
Pharmaceuticals specialized segments like anti infectives,
7.24 Driven by the knowledge skills, growing cardiovasculars and central nervous system
enterprises, low costs, improved quality and groups.
buoyant demand (both domestic and 7.26 Due to various policy intitiatives taken
international), the pharmaceutical sector’s by Government in the recent past, research
value of output grew more than tenfold from and development (R&D) activites in this sector
Rs. 5,000 crore in 1990 to over Rs. 55,000 has not only increased quantitatively but also
crore during 2005-06. With value of exports at qualitatively. The National Pharmaceutical
over Rs. 21,000 crore or US$4.7 billion in 2005- Policy, aimed at ensuring availability of life
06, India is today recognized as one of the saving drugs at reasonable prices, is being
leading global players in pharmaceuticals. finalized and will be implemented shortly.
Internationally, recognized as amongst the
lowest-cost-producers of drugs, India holds Oil and Gas
fourth position in terms of volume and 7.27 Crude oil production in 2006-07 up to
thirteenth position in terms of value of December 2006 was 25.40 million tonnes, up
production in pharmaceuticals. It is estimated
6.03 per cent from 24.03 million tonnes in the
that by the year 2010, the Indian
first nine months of 2005-06. Natural gas
pharmaceutical industry has the potential to
production up to December 2006 at 23.53
achieve over Rs. 1,00,000 crore in
billion cubic metres, however, was down 2.42
formulations and bulk drug production.
per cent from 24.10 billion cubic metre in the
7.25 Increasing number of Indian same period of the previous year. Thus, on
pharmaceutical companies have been getting the aggregate, oil and oil equivalent of gas

Box 7.2 Under recovery by Oil Marketing Companies

(Rupees in Crore)
Under-recovery 2003-04 2004-05 2005-06 April- June April-September
(Estimate) 2006 2006

PDS Kerosene and 9,274 17,842 24,630 6,803 14,875

domestic LPG*
Petrol and Diesel 0 2,304 15,370 10,243 18,310

Total 9,274 20,146 40,000 17,046 33,185

*On gross basis, i.e. before sharing of losses by upstream oil companies.
Source: Ministry of Petroleum & Natural Gas

144 Economic Survey 2006-2007

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(O+OEG) production in 2006-07 up to However, the prices of PDS Kerosene and
December 2006, year-on-year, increased by domestic LPG were not touched. Government
only about 1.85 per cent. also decided to issue bonds worth Rs.28,300
crore to oil marketing companies for losses
7.28 With 19 refineries – 17 in the public
suffered due to non-revision of prices in
sector and 2 in the private – the domestic
respect of sensitive petroleum products for the
refining capacity in December 2006 was
current financial year 2006-07. During the year
148.97 million tonnes per year. During 2005-
2005-06, such bonds worth Rs.11,500 crore
06, refinery throughput at 130.11 million tonnes
were issued by Government.
was up 2.1 per cent from 127.42 million tonnes
in the previous year. During April-December 7.31 However, in view of declining
2006, such throughput was 107.42 million international prices, Government reduced the
tonnes. prices of petrol and diesel with effect from
7.29 Global prices of crude oil and November 30, 2006. The impact of this
petroleum products reached new highs in the reduction was around Rs.2 per litre for petrol
past two years. The Indian basket of crude oil and Rs.1 per litre for diesel. A further reduction
prices touched an all-time high of US$75.20 of the same magnitude was made effective
per barrel on August 8, 2006. Government tried from February 16, 2007. International prices
to distribute the heavy burden of this oil price of oil are projected to remain high in winter,
hike equitably amongst various stakeholders,
namely upstream companies, oil-marketing Box 7.3 : Policy Decisions during 2006-07
companies, Government and the consumers.
Petroleum and Natural Gas Regulatory Act,
As in 2004 and 2005, Government tried to 2006 has been notified on April 3, 2006 to
regulate specific activities relating to petroleum,
further restructure the duties on petroleum petroleum products and natural gas
products to mitigate the burden of price rise consequent to deregulation of the petroleum
on the common man. In the Union Budget sector.
2006, LPG (Domestic) was categorized as
Taking into account the oil security of India,
“Declared Goods” requiring State Government has decided to set up strategic
Governments to peg the sales tax rate to no crude oil storage facility of 5 million tonnes at
various locations in the country.
more than 4 per cent and thereby partially

Sale of 5 per cent ethanol blended petrol in
reduce the severe under-recoveries (Box 7.2) various parts of the country has been allowed,
suffered by oil marketing companies in subject to commercial viability, from November
sensitive petroleum products. Further, with 1, 2006.
effect from June 14, 2006, customs duty on
Sixth Round of New Exploration Licensing Policy
petrol and diesel was reduced from 10 per (NELP) was launched on February 23, 2006 by
cent to 7.5 per cent. Since mid-June 2006, in offering 55 exploration blocks covering an area
of 3.52 lakh square kilometers.
line with the recommendation of the High–

Coal Bed Methane (CBM) has emerged as
Powered Inter-Ministerial Committee headed another alternative viable source of gas. The
by Dr. C. Rangarajan, the basis of pricing was third round of CBM-II policy was launched, and
changed from import-parity to trade-parity. 10 CBM blocks have been awarded.
Trade-parity price is the weighted average of
On December 20, 2006 Government has
import-parity (4) and export-parity (1) prices. notified the Policy for Development of Nautral
Gas Pipelines and City or Local Natural Gas
7.30 During 2006, in view of the very high Distribution Networks, which inter alia seeks
under-recoveries and acute financial distress to promote competition and arm’s length
having a direct bearing on the corporate image business.
and strength of the oil marketing companies,
Along with intensifying exploration efforts in the
Government was compelled to increase the country, the oil companies are aggressively
following a policy of gaining global properties.
prices of petrol and diesel by Rs.4 per and ONGC Videsh Limited (OVL) has presence in
Rs.2 per litre respectively with effect from June 15 countries and has set a target to acquire 20
6, 2006. Prior to this the prices of petrol and million tonnes per annum of oil and oil
diesel were revised on September 7, 2005. equivalent gas production by 2020.

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with OPEC announcing a cut in output by 1.2 development of tourist destinations and
million barrels per day with effect from circuits, improving and expanding existing
November 1, 2006 and a further cut of 0.50 products such as cultural and heritage tourism,
million barrel per day with effect from February rural tourism, adventure tourism and health
1, 2007 with a view to maintain oil prices. and healing tourism, need to be pursued to
Government has taken several steps to establish India’s competitive advantage in this
effectively control and regulate the volatility in critical sector.
prices, and augment production of oil and
natural gas (Box 7.3). Electronics & Computer Technology
Tourism 7.35 The Indian IT-enabled Services and
Business Process Outsourcing (ITES-BPO)
7.32 The impressive growth profile of the
have demonstrated their superiority, sustained
tourism sector observed over the last two
cost advantage and fundamentally-powered
years appears to be continuing. As per the
value propostion in the international market.
World Tourism Organization, about 808 million
This sector is growing with Indian companies
tourists travelled internationally – a growth of
expanding their service offerings, enabling
5.6 per cent over 2004 – and spent about
customers to deepen their offshore
US$680 billion. Furthermore, according to the
engagements and shifting from low-end
World Travel and Tourism Council (WTTC),
business processes to high-value ones. The
tourism accounted for 10.6 per cent of global
software and ITES exports from India grew
GDP, 12.0 per cent of the total world exports
from US$12.9 billion (Rs. 58,240 crore) in
and 8.3 per cent of global employment in the
2003-04 to US$17.7 billion (Rs. 78,230 crore)
year 2005.
in 2004-05 (Table 7.10). Software and ITES
7.33 The double-digit growth in both number exports from India estimated at US$23.4 billion
of foreign tourist arrivals and foreign exchange during 2005-06 was up 32 per cent from the
earnings therefrom continued for the third previous year.
consecutive year in 2005-06. However, there
7.36 With strong demand over the past few
was a deceleration in the growth rate of foreign
years placing India among the fastest growing
tourist arrivals and foreign exchange earnings
IT markets in the Asia-Pacific region, the
therefrom between 2004-05 and 2005-06
industry’s contribution to GDP rose from 1.2
(Table 7.9).
per cent in 1999-2000 to an estimated 4.8 per
7.34 Sustained improvement in tourist cent in 2005-06. Indian companies are
infrastructure, such as airports, rail and roads enhancing their global services delivery
leading to connectivity of tourist destinations, capabilities through a combination of
greenfield initiatives, cross-border mergers &
Table 7.9 : Foreign tourist arrivals and acqusitions, partnerships and alliances with
foreign exchange earning local players. This is enabling them to execute
end-to-end delivery of new services. Global
Year Foreign tourists Estimated foreign software giants such as Microsoft, Oracle and
Exchange Earnings
Number Growth Million Growth
SAP, have established their captive
in Lakh Rate US$ Rate development centres in India. A majority of the
companies in India have already aligned their
1998-99 23.97 1.1 2993 2.7
1999-00 25.05 4.5 3036 1.4 internal processes and practices to
2000-01 26.99 7.7 3168 4.3 international standards such as ISO, CMM, and
2001-02 24.28 -10.0 2910 -8.1 Six Sigma. This has helped establish India as
2002-03 24.54 1.0 3029 4.1 a credible sourcing destination. As of
2003-04 29.33 19.5 3979 31.4
2004-05 36.03 22.8 5029 26.4
December, 2006, over 400 Indian companies
2005-06 40.53 12.5 5931 17.9 have acquired quality certifications with 82
companies certified at SEI CMM Level 5 –
Source : Ministry of Tourism
higher than any other country in the world.

146 Economic Survey 2006-2007

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 Table 7.10 : Electronics exports
(Rs. Crore)
Items 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
1. Electronics Hardware 4,788 5,800 5,600 7,700 8,000 8,500
2. Computer Software 28,350 36,500 46,100 58,240 78,230 103,200

Total 33,138 42,300 51,700 65,940 86,230 111,700

Table 7.11 : Electronics production

(Rs. Crore)
Items 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

1. Consumer Electronics 11,950 12,700 13,800 15,200 16,800 18,000

2. Industrial Electronics 4,000 4,500 5,550 6,100 8,300 8,800
3. Computers 3,400 3,550 4,250 6,800 8,800 10,800
4. Communications and 4,500 4,500 4,800 5,350 4,800 7,000
Broadcasting Equipments
5. Strategic Electronics 1,750 1,800 2,500 2,750 3,000 3,200
6. Components 5,500 5,700 6,600 7,600 8,800 8,800
Sub-Total 31,100 32,750 37,500 43,800 50500 56,600
7. Software for Exports 28,350 36,500 46,100 58,240 78,230 103,200
8. Domestic Software 9,400 10,874 13,400 16,250 19,630 26,460
Total 68,850 80,124 97,000 118,290 148,360 186,260
Source : Ministry of Information and Technology

7.37 While there have been no spectacular employment scenario with total number of
achievements in the hardware segment as in professionals employed in this sector growing
the case of the software segment of the IT from an estimated 284,000 in 1999-2000 to
sector, there has been a steady progress in 1,287,000 in 2005-06. The increase in the
production (Table 7.11) and exports (Table number of employed person in the sector was
7.10) of hardware. as high as 230,000 in 2005-06 itself. In
7.38 Contrary to some popular addition, Indian IT-ITES is estimated to have
misperceptions, the growth of the IT and ITES helped create an additional 30 lakh job
sector has had a salutary effect on the oppurtunities through indirect and induced
Box 7.4 : Policy Initiatives For Electronics and IT Sector

The Information Technology Amendment Bill has been introduced in the Parliament on December 15,
2006. This proposes to put in place technology applications, security practices and procedures relating to
such applications. Furthermore, it addresses the issue of technological neutrality in IT laws as recommended
by UNCITRAL Model Law on Electronic Signature.

A proposal for Electronics & IT Hardware Manufacturing Policy is also under consideration which aims to i)
rationalize tariff structure on capital goods and inputs, ii) unifiy manufacturing for domestic market and
exports, iii) facilitate registration of international patents, iv) transfer state-of-the-art technology(TOT) and v)
enhance Research and Development.

In order to ensure that the benefits of IT reach the common man, Government has initiated a move to make
available tools and fonts in various Indian languages freely to the general public. Tamil, Hindi and Telugu
software tools and fonts have already been released. All Indian languages are expected to be covered in the
next one year.

Government , to ensure penetrations of the IT and ITES in the rural areas, has formulated a proposal to
establish 1,00,000 Common service Centres (CSCs) in rural areas, which will serve not only as the front-
end for most government services but also as a means to connect the citizens of rural India to the World
Wide Web. The scheme will be implemented through Public Private Partnership (PPP). An outlay of Rs.
5,742 has been approved of which the share of the Central Government and the State Governments would
be Rs.856 croe and Rs.793 crore, respectively. The balance would be invested by the private sector.

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employment in telecom, power, construction, modernize and restructure sick CPSEs and
facility management, IT transportation, catering revive sick industry. Only the chronically loss-
and other services. Government has taken making CPSEs are being considered for
several steps to further enhance this industry closure or sell-off after payment of due
(Box 7.4). compensation to the laid-off employees. The
problem of sickness in CPSEs is addressed
Central Public Sector Enterprises by the administrative Ministries/Departments
(CPSEs) by evolving an appropriate need-based
strategy concerning a particular CPSE.
7.39 Contributing an estimated 11.12 per
Government, to further help the CPSUs to turn
cent of GDP at market prices in 2005-06, the
around financially, set up the Board for
CPSEs continued to be engaged in the
Reconstruction of Public Sector Enterprises
production and supply of a wide range of
(BRPSE) in December 2004 to recommend
products and sevices (Box 7.5) including basic
measures for restrucuturing/reviving CPSEs
goods like steel, cement and chemicals;
referred to them. The BRPSE also
capital goods like pressure vessels, boilers
recommends cases where disinvestment or
and drilling rigs; and intermediate goods like
closure or sale are justified. Till October 31,
electricity and gas. They also rendered a large
2006, BRPSE has made recommendations
number of services like telecommunications,
in respect of 36 CPSEs, and Government has
tourism, and warehousing.
approved the proposals in 21 cases.
7.40 The National Common Mimimum 7.41 In order to ensure and encourage
Programme (NCMP) stipulates a strong and efficiency in their functioning, Government has
effective public sector whose social objectives taken various steps to professionalise the
are met without prejudice to its commercial Boards of CPSEs. These include provision of
functioning. Efforts are being made to outside professionals in the form of part-time

Box 7.5 : Highlights of CPSE performance in 2005-06

The share of CPSEs in GDP at market prices stood at 11.12 per cent in 2005-06 and 11.68 per cent in 2004-
05.

The cumulative investment of all CPSEs at end-March, 2006 was Rs.3,93,057 crore. The share of
manufacturing CPSEs in such investment was the highest at 51 per cent followed by service CPSEs at 40
per cent, mining CPSEs at 7 per cent.

The overall growth in turnover of CPSEs was 11.86 per cent. The growth in the turnover of ‘heavy engineering
and construction services’ group was the highest at 39 per cent during the year.

In terms of capacity utilization, 51 per cent of all CPSEs operated at 75 per cent or higher; 16 per cent at 50-
75 per cent, and the residual 33 per cent at less than 50 per cent.

CPSEs had a near monopoly in the production of coal (85.52 per cent), crude oil (85.87 per cent) and
petroleum refining (74.51 per cent).· The aggregate reserves and surpluses of all CPSEs went up to Rs.
3,59,077 crore.

The long-term loans of CPSEs went up to Rs. 3,61,714 crore.

The accumulated losses of all CPSEs declined by Rs.10,578 crore from Rs.83,725 crore in 2004-05 to
Rs.73,147 crore.

While the petroleum producing CPSEs ranked among the top ten profit-making CPSEs, the fertilizer
producing CPSEs were generally the loss-making ones.

44 CPSEs are listed on the domestic stock exchanges. While the shares of MTNL (ADR) are listed on the
New York Stock Exchange, the shares of GAIL and SAIL are listed on the London Stock Exchange.

In net value addition of CPSEs at market prices, the share of ‘taxes and duties’ was the highest at 46 per
cent, followed by ‘net profit’ (26 per cent), ‘salaries & wages’ (19 per cent) and ‘interest’ (9 per cent).

At end-March, 2006, the 239 CPSEs employed over 16.49 lakh people excluding casual workers. The
comparable figures in the previous four years were 19.92 lakh, 18.66 lakh, 17.62 lakh, 17.00 lakh, respectively.
Source: Department of Public Sector Enterprises.

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non- official Directors, restricting the number the policy is to list large, profitable CPSEs on
of Government nominated Directors to one- domestic stock exchanges.
sixth of the actual strength of the Board subject
to a maximum of two, and incorporation of Micro and Small Enterprises
functional Directors upto a limit of 50 per cent
7.43 The micro and small enterprises
of the actual strength of the Board. On the
(MSEs) constitute an important segment of
recommendations of Arjun Sen Gupta
the Indian economy, contributing around 39 per
Committee, the Government, during 1987-88,
cent of the country’s manufacturing output and
introduced the concept of Memorandum of
34 per cent of its exports in 2004-05. It provides
Understanding (MOU) to ensure clarity in the
employment to around 29.5 million people in
functioning of CPSEs, and proper balance
the rural and urban areas of the country
between accountability and autonomy for (Table 7.11).
better results. The number of CPSEs signing
MOUs went up from 4 in 1987-88 to 112 in 7.44 The process of economic liberalisation
2006-07. In order to further the competitive and market reforms, while exposing the Indian
spirit, an attempt has also been made to MSEs to increasing levels of domestic and
evaluate the performance of the CPSEs on global competition, has also opened up
the basis of (a) sales, (b) growth of sales, (c) attractive possibilities of access to larger
net profit, (d) growth in net profit, (e) return on markets and of stronger and deeper linkages
net worth, (f) earning per share, and (g) of MSEs with larger enterprises. Improved
dividend pay-out ratio. manufacturing techniques and management
processes can be sourced and adopted with
7.42 The Government policy on greater ease. A robust and vibrant MSE
disinvestment has evolved over the last segment can derive the benefits of these new
decade and has been generally announced opportunities provided appropriate enabling
through the Budget. Disinvestment of policies are put in place and measures for
Government equity in CPSEs began in 1991- capacity building in public private mode are
92. Till 1999-2000, disinvestment was primarily also initiated. In this environment of competition
through sale of minority shares in small lots. and rapid technological changes, the segment
Between 1999-2000 and 2003-04, the can then achieve higher sustained growth by
emphasis of disinvestment changed in favour enhancing its technological capabilities,
of strategic sale. The proceeds from improving its product and service quality to
disinvestment from April 1991 to March 2006 global standards and seeking ways of
amounted to Rs. 49,241.29 crore. At present, innovation

Table 7.11 : Performance of Micro and Small Enterprises

Year No. of units (in lakh) Production (Rs. crore) Employment Exports
Regd. Unregd. Total (at current (at constant ( in lakh) (Rs. crore)
prices) prices)
2002-03 15.91 93.58 109.49 3,11,993 2,10,636 260.21 86,013
(4.1) (10.5) (7.7) (4.4) (20.7)
2003-04 16.97 96.98 113.95 3,57,733 2,28,730 271.42 97,644
(4.1) (14.7) (8.6) (4.3) (13.5)
2004-05 17.53 101.06 118.59 4,18,263 2,51,511 282,57 1,24,417
(4.1) (16.9) (10.0) (4.1) (27.4)
2005-06 18.71 104.71 123.42 4,76,201 2,77,668 294.91 N.A.
(4.1) (13.9) (10.4) (4.4)

Note : Figures in parenthesis indicate percentage growth over previous years

Source : Development Commissioner (SSI).

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7.45 Intiatives and measures taken by the
Box : 7.6 Salient Features of the Micro,
Government during the year to enable MSEs Small and Medium Enterprises
enhance their competitive strength, address Development Act, 2006
the challenges of competition and avail of the
benefits of the global market include:
It provides the first-ever legal framework for
recognition of the concept of "enterprise"

Enactment of the Micro, Small and (comprising both manufacturing and services)
Medium Enterprises Development and integrating the three tiers of these
(SMED) Act, 2006. (Box 7.6) enterprises, viz, micro, small and medium

Amendment to the Khadi and Village
Under the Act, enterprises have been
categorized broadly into those engaged in (i)
Industries Commission Act, 1956 manufacturing and (ii) providing/rendering of
introducing several new features to services. Both categories have been further
facilitate professionalism in the classified into micro, small and medium
operations of the Commssion as well as enterprises, based on their investment in plant
field-level formal and structured and machinery (for manufacturing enterprises)
or in equipment (in case of enerprises providing
consultations with all segments of or rendering services) as under:
stakeholders. The new Commission has
Manufacturing Enterprises:Micro Enterprises-
been constituted. investment up to Rs. 25 lakh.Small Enterprises

A package for Promotion of Micro & Small – investment above Rs. 25 lakh and up to Rs. 5
Enterprises has been approved recently crore.Medium Enterprises – investment above
Rs. 5 crore and up to Rs. 10 crore.
to address most of the concerns in the
areas such as credit, cluster-based Service Enterprises:
development, infrastructure, technology, Micro Enterprises – investment up to Rs. 10
and marketing. Capacity building of lakhSmall Enterprises – investment above Rs.
MSME Associations and support to 10 lakh and up to Rs. 2 crore.Medium
Enterprises – investment above Rs. 2 crore
women entrepreneurs are the other and up to Rs. 5 crore.
important features of this package.

The Act provides for a statutory consultative

An empowered group of Ministers mechanism at the national level with wide
(EGoM) under the Chairmanship of the representation of all sections of stakeholders,
External Affairs Minister has been set up particularly the three classes of enterprises,
and with a wide range of advisory functions,
to lay down a comprehensive policy for
and an Advisory Committee to assist the Board
cluster-development and oversee its and the Centre/State Governments.
implementation.

The other features include (i) establishment of

Under the Credit Guarantee Scheme, life specific Funds for the promotion, development
insurance cover for chief promoters of and enhancement of competitiveness of these
units provided guarantee cover by the enterprises, (ii) notification of schemes/
programmes for this purpose, (iii) progressive
Credit Guarantee Fund Trust for Small credit policies and practices, (iv) preference in
Industries (CGTSI) has been introduced. Government procurements to products and
Further, the one-time guarantee fee under sevices of the micro and small enterprises, (v)
the scheme has been reduced from 2.5 more effective mechanisms for mitigating the
problems of delayed payments to micro and
per cent to 1.5 per cent with effect from small enterprises and (vi) simplification of the
April 1, 2006. process of closure of business by all three

After due consultation with the categories of enterprises.
stakeholders, 180 items reserved for
scale sector, particularly when such products
exclusive manufacture in micro & small
can be freely imported from large-scale
enterprises have been de-reserved on
production units abroad and when such a
May 16, 2006 and 87 such items have
policy prevents the ‘small’ from growing and
been dereserved on January 22, 2007.
benefiting from the economies of scale, has
7.46 The logic of reserving items for progressively come under serious questioning.
domestic production exclusively in the small- However the question that needs to be

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Table 7.12 : Trend in Reservation of Items for addressed is whether the reservation in the
the Small Scale Sector small scale sector is based on any objective
policy parameter. The process of reservation
Date of Number of Number of Cumulative
Notification Reserved Dereserved Total of items for production exclusively by the
small-scale sector started in 1967 and reached
Phase 1
its peak in 1984 (Table 7.12). There has been
April 11, 1967 47 0 47
Feb 19, 1970 8 0 55
a gradual relaxation of the reservation policy
Feb 24, 1971 73 0 128 over time, and the number of items reserved
Nov 11, 1971 0 4 124 for the small-scale sector was 239 on January
Feb 26,1974 53 0 177 22, 2007.
June 5, 1976 3 0 180
April 26, 1978 324 0 504 Industrial Sickness
Phase 2 7.47 Since its inception in May 1987 till the
April 26,1978* 807 807
end of September 2006, the Board of Industrial
Dec 30, 1978 1 806
May 12, 1980 27 0 833 and Financial Reconstruction (BIFR) received
Feb 19,1981 1 1 833 6,991 references under the Sick Industrial
Aug 3, 1981 9 842 Companies (Special Provision) Act (SICA),
Dec 23, 1981 02 13 831 1985 (Table 7.13). These references included
Oct 14,1982 3 828
296 references from CPSUs and State PSU
Oct 19,1982 9 837
Sep 3, 1983 35 872
(SPSUs).] With 6,991 references received,
Oct 18, 1984 1 873 5,412 were registered under section 15 of
May 30, 1986 7 14** 869 SICA. 1,707 were dismissed as non-
Oct 30,1986 1 7 863 maintainable under the Act. 760 rehabilitation
Feb 13, 1987 0 13 850 schemes, including 12 by Appellate Authority
July 20,1987 0 3 847
of Industrial and Financial Reconstruction
March 18, 1988 0 1 846
March 3, 1989 3 14 835 (AAIFR)/Supreme Court, were sanctioned and
July 31,1989 1 836 1,303 companies were recommended to be
April 3, 1997 0 15 821 wound up. 485 companies have been declared
Feb 3, 1999 0 9 812 ‘no longer sick’ and were discharged from the
Jan 1,2001 0 1 811 purview of SICA on their net worth turning
June 29,2001 0 14*** 799
May 20,2002 0 51@ 749
positive after the implementation of the
June 3, 2003 0 75@@ 675 schemes.
Oct 20,2004 0 85@@@ 605 7.48 Among the 296 references for PSUs,
March 28,2005 0 108@@@@ 506
213 (91 CPSUs and 122 SPSUs) were
May 16,2006 180 326
Jan 22, 2007 0 87 239
registered up to September 30, 2006.
Rehabilitation schemes were sanctioned for 28
Source: Minsitry of Small Scale Industries (SSI) and CPSUs and 26 SPSUs. It was recommended
Agro & Rural Industries
* In 1978, it was decided to recast the that 29 CPSUs and 40 CPSUs be wound up. 9
reserved list by following codes adopted CPSUs and 14 SPSUs were declared ‘no
in the NIC and in the process the list of
dereserved items expanded from 504 to
longer sick’. As on March 31, 2002, 2003, 2004
807. and 2005 the gross disposal of cases was,
** Since it included three sub-items, the 2,400, 2,867, 3,318 and 3,426, respectively. In
effective number comes to 11 only
the current year, the gross disposal of cases,
*** Since it included two sub-items, the
effective number comes to 12 only as on September 30, was 4,115.
@ Since it included one sub-item, the effective
number comes to 50 only Industrial Relations
@ @ Since it included one sub-item, the effective
number comes to 74 only 7.49 The continued decline in the number
@@@ Since it included 15 sub-items, the effective of strikes and lockouts indicates an
number comes to 70 only
improvment in industrial relations in the country
@@@@ Since it included 10 sub-items, the effective
number comes to 98 only (Table 7.14). The number of strikes and

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 Table 7.13 : References to BIFR as on September 30, 2006

Sl. Status Private Central State Total Total

No. PSUs PSUs PSUs
1 References received 6,695 108 188 296 6,991
2 Registration declined 1,484 17 66 83 1,567
3 Under Scrutiny 12 0 0 0 12
A References registered (=1-2-3) 5,199 91 122 213 5,412
DISPOSALS
5 Dismissed
(i) as non-maintainable 1,660 11 36 47 1,707
(ii) as multiple registered 218 0 0 0 218
6 Rehabilitation schemes approved/sanctioned
(i) by BIFR 695 27 26 53 748
(ii) by AAIFR/SC 11 1 0 1 12
7 Declared on longer sick out of SI No. 6 462 9 14 23 485
8 Winding up recommended to the concerned
high courts 1,234 29 40 69 1,303
9 Dropped now 119 5 3 8 127
B Total (5+6+8+9) 3,937 73 105 178 4,115
C PENDING
10 Draft schemes circulated 42 2 0 2 44
11 Winding up notice issued 85 1 4 5 90
12 Pending for sickness determination 357 2 1 3 360
13 Declared sick 678 11 10 21 699
14 Schemes failed and reopened 8 1 0 1 9
15 Pending cases remanded by AAIFR 43 1 2 3 46
16 Stay ordered by courts 46 0 3 3 49

Total (C=A-B) 1,262 18 17 35 1,297

Source: BIFR, Department of Economic Affairs, Ministry of Finance

lockouts, taken together, was down by 4.4 per instances of strikes and lockout followed by
cent in 2005. During the current year, as per Tamil Nadu and Gujarat. Industrial
the available information till September, 2006 disturbances were concentrated mainly in
West Bengal experienced the maximum textile, financial intermediaries (excluding

Table 7.14 : Strikes and lockouts

Strikes Lockouts Total

Year Number Mandays Number Mandays Number Mandays
lost lost lost
(in million) (in million) (in million)

2000 426 11.96 345 16.80 771 28.76

2001 372 5.56 302 18.20 674 23.77
2002 295 9.66 284 16.92 579 26.58
2003 255 3.21 297 27.05 552 30.26
2004 236 4.83 241 19.04 477 23.87
2005 227 10.81 229 18.86 456 29.66
2006(Jan-Sep)(P) 154 3.16 192 10.60 346 13.75
P – Provisional, Total may not tally due to rounding off
Source : Labour Bureau, Shimla

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insurance and pension fund), engineering and the region. During April-September 2006, total
chemical industries. FDI inflows (excluding ‘reinvested earnings’
and ‘other capital components’) were
Foreign Direct Investment Rs.20,155 crore (US$4.38 billion). Cumulative
FDI inflows since August 1991 up to
7.50 The inflow of Foreign Direct Investment Septmeber 2006 were Rs.1,81,566 crore
(FDI) has registered robust growth in the (US$43.29 billion). Among sectors attracting
current financial year. As per the latest report high cumulative FDIs (Table 7.15), electrical
of UNCTAD, India surpassed South Korea to equipments retained the first spot, followed by
become the fourth largest recipient of FDI in sevices and telecommunications. Services

Table 7.15 : Sectors attracting highest FDI inflows

(Amount in Rupees crore and in US$ in million in parentheses)

Ranks Sector 2003-04 2004-05 2005-06 2006-07 Cumulative Share of

(April – inflowsFDI inflows
Sep) (from Aug (in per
1991 to cent)
Sep 2006)
1 Electrical Equipment s
(including computer
software and electronics) 2,449(532) 3,281(721) 6,499(1451) 3,601(778) 27,311(6,272) 17.54
2 Services Sector (financial &
non-financial) 1,235(269) 2,106(469) 2,565(581)6,955(1,509) 19,759(4,600) 12.69
3 Telecommunications
(radio paging, cellular mobile,
basic telephone services) 532(116) 588(129) 3,023(680) 3,835(405) 16,172(3,776) 10.39
4 Transportation Industry 1,417(308) 815(179) 983(222) 1,187(259) 14,502(3,436) 9.31
5 Fuels (Power +Oil refinery) 521(113) 759(166) 416(94) 632(138) 11,608(2,720) 7.45
6 Chemicals (other than fertilizers) 94(20) 909(198) 1979(447) 439(95) 9,019(2,238) 5.79
7 Food Processing Industries 511(111) 174(38) 183(42) 150(33) 4,852(1,212) 3.12
8 Drugs and Pharmaceuticals 502(109) 1,343(292) 760(172) 219(48) 4,531(1,055) 2.91
9 Metallurgical Industries 146(32) 881(192) 681(153) 511(111) 3,328(766) 2.14
10 Cement and Gypsum Products 44(10) 1(0) 1,970(452) 96(21) 3,327(768) 2.14
Source : FDI Data Cell, Ministry of Commerce

and telecommunications dislodged 7.51 As destinations of FDI inflows (Table

transportation industry to the fourth spot from 7.16), the first four spots continued to be
the second spot held by it last year. New Delhi, Mumbai, Bangalore and

Table 7.16 : Region-wise/State-wise Break- up of Cumulative FDI Inflows until September 2006

Rank RBI’s Regional State covered Amount of FDI Inflows Share of FDI
Office inflows in
Rupees in crore US$ in million rupees
(in per cent)
1 New Delhi Delhi, Part of UP and Haryana 27,369.16 6,053.2 24.00
2 Mumbai Maharashtra, Dadra and
Nagar Haveli, Daman and Diu 24,545.44 5,399.1 21.52
3 Bangalore Karnataka 7,809.7 1,727.5 6.85
4 Chennai Tamil Nadu and Pondicherry 7,413.15 1,630.6.7 6.50
5 Hyderabad Andhra Pradesh 4,412.80 970.6 3.87
Source : FDI Data Cell, Ministry of Commerce

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Chennai, while Hyderabad overtook in the petroleum sector, and cash and
Ahmedabad to occupy the fifth place by carry wholesale trading and export
September, 2006. trading.
7.52 With increased liberalisation, equity
Increase in equity caps: FDI caps have
caps on FDI existed only in limit sectors. been increased to 100 per cent and
These are a FM radio broadcasting (upto 20 automatic route extended to coal and
per cent); insurance, defence production, lignite mining for captive consumption,
petroleum refining in the PSUs, print and setting up of infrastructure relating to
electronic media covering news and current marketing in petroleum and natural gas
affairs (upto 26 per cent); air transport sector and exploration and mining of
services, asset reconstruction companies, diamonds and precious stones.
cable network, direct to home (DTH),
FDI in new activites: FDI has been
hardware for uplinking, HUB, etc. (upto 49 per allowed up to 100 per cent on the
cent); single brand retailing (upto 51 per cent); automatic route in power trading and
atomic minerals, private sector banking, processing and warehousing of coffee
telecom services, establishment and and rubber. FDI has also been allowed
operation of satellites (upto 74 per cent). FDI up to 51 per cent for ‘single brand’ product
is prohibited in retail trading (except for single retailing which requires prior approval of
brand product retailing), gambilng and betting, Government. Specific guidelines have
lottery and atomic energy. Approval for been issued for governing FDI for ‘single
proposals for induction of equity of more than brand’ product retailing.
24 per cent for manufacture of items that are
Removal of restrictive conditions:
reserved for small-scale sector and the Mandatory divestment conditions for
proposals where the foreign investor has an Business to Business e-commerce has
existing joint venture/technical collaboration/ been dispensed with.
trademark agreemtn in the same field of activity
and attract the provisions of Press Note (2005
Procedural simplification: The transfer
of shares from resident to non-resident
Series) are not under automatic route.
including acquisition of shares in an
7.53 A comprehensive review of the FDI existing company has been placed on the
policy was undertaken during the current year automatic route subject to sectoral policy
vide Press Note 4 dated February 10, 2006, on FDI.
to consolidate the liberalization already
7.54 In order to boost production of cash
effected and further rationalize the FDI policy
crops through infusion of foreign funds and
governing various activities. The major policy
technical know how, vide Press Note 4 of
intiatives taken are:
February 10, 2006, Agriculture & plantations

Change of route: FDI has been allowed was removed from the list of prohibited sectors
up to 100 per cent under the automatic for FDI, and the activities permitted within
route for distillation and brewing of these sectors were included in the sector-
potable alcohol, manufacture of industrial specific policy. As per the present policy, FDI
explosives, manufacture of hazardous up to 100 per cent is permitted under the
chemicals, manufacturing activities automatic route in floriculture, horticulture,
located within 25 kms of the Standard development of seeds, animal husbandry,
Urban Area limits requiring industrial pisciculture, aqua-culture and cultivation of
license under the IDR(Act) 1951, setting vegetables & mushrooms under controlled
up of greenfield airport projects, laying of condtions, and services related to agro and
natural gas/LNG pipelines, market study allied sectors. FDI up to 100 per cent with prior
and formulation and investment financing Government approval is permitted in tea

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 Table 7.17 : Employment trends vis-à-vis IIP growth in the organized manufacturing sector
(1987-88 to 2003-04)
(Value figures in lakh and others in numbers)

Characterestics 1987-88 1991-92 1996-97 2001-02 2002-03 2003-04

No. of factories 102,596 112,286 132,814 128,549 127,957 129,074

Fixed Capital 7,847,463 15,190,240 38,004,439 43,196,013 44,475,938 47,333,140
No. of Workers 6,061,786 6,269,039 7,208,143 5,957,848 6,161,493 6,086,908
No. of employees 7,785,580 8,193,590 9,448,643 7,686,654 7,870,529 7,803,395
Total persons engaged 7,903,826 8,319,563 9,536,282 7,750,366 7,935,948 7,870,081
Wages to workers 893,370 1,358,263 2,655,459 2,743,824 2,968,905 3,047,777
Total emoluments 1,408,105 2,097,048 4,640,358 5,105,957 5,515,801 5,833,675
Other benefits 189,157 421,840 947,074 1,238,964 1,318,412 1,411,758
Total inputs 11,938,728 23,302,799 55,691,484 77,922,749 91,618,549 103,962,377
Value of output 15,397,307 29,919,581 74,180,838 96,245,663 113,056,111 128,738,002
Depreciation 625,220 1,134,080 2,753,467 3,892,702 4,203,558 4,482,349
Net value added 283,360 5,482,702 15,735,887 14,430,212 17,234,004 20,293,276
Rent paid 44,751 119,117 426,234 375,118 379,356 416,084
Interest paid 862,606 1,881,190 3,994,437 4,221,788 3,835,182 3,397,229
Profits 3,28,741 963,507 4,197,844 3,488,385 6,185,254 9,234,531
IIP growth (%) 7.3 0.6 6.1 2.7 5.7 7.0

Source : Annual Survey of Industries

plantation subject to the conditions of the period up to 2003-04 raises some

divestment of 26 per cent equity of the disturbing questions in this context. As per the
company in favour of an Indian partner/Indian figures published by Annual Survey of
public within a period of five years and prior Industries, there was a decline in the absolute
approval of the State Government concerned number of persons engaged in the organized
in case of any future land use change. Besides manufacturing sector between 1987-88 and
the above two, FDI is not allowed in any other 2003-04 (Table 7.17). The decline actually took
agricultural sector/activity. place during the period 1996-97 to 2003-04,
when average annual growth rate of IIP was
Industrial Sector, the Eleventh Five 5.5 per cent, and such growth of the
Year Plan and Special Economic manufacturing sector was even higher at 5.9
Zones per cent. Profitability (i.e., share of profits in
the net value added) during the period 1987-
7.55 As stated in the Approach Paper to the 88 to 2003-04 increased substantially from
Eleventh Plan, to “… absorb all new entrants 11.6 per cent to 45.51 per cent, while share of
into the labour force, non-agricultural wages came down from 56.4 per cent to 35.7
employment would need to increase at over 6 per cent. With a bias towards capital-intensive
per cent per annum during the 11th Plan. This technology, there was a drop in total
poses a major challenge not only in terms of employment in the sector. The trend of
generating non-agricultural employment but sluggish employment growth in organized
also in matching its required location and type”. manufacturing is also corroborated by the
Thus, generation of adequate employment is lacklustre performance of the historically
one of the crucial elements in the Eleventh labour-intensive manufacturing sub-sectors
Plan’s vision of “inclusive growth”. And, this like leather, food products, jute and jute
major target of employment generation in the products and leather and leather products in
non agricultural sector is intimately linked with more recent years.
the growth of the industrial sector.
7.57 As per Planning Commission
7.56 The performance on the employment estimates, an annual average growth rate of
front in the organized manufacturing sector in about 12 per cent of the manufacturing sector

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is necessary to ensure that the targeted difficulties, they provided scope for cultivating
average annual gowth of 10 per cent of the manufacturing competitiveness when
industrial sector is achieved during the licensing, labour rigidities and high import
Eleventh Plan. Upgradation of infrastructure, duties and taxes acted as a disincentive for
an enabling fiscal structure, technological investment in the rest of the areas. However,
modernization, amendment of labour laws and in India, the EPZ experiment was much less
corporate laws and enhanced accessibility to of an unequivocal success; and since 1965,
institutional credit are some of the crucial when the first EPZ in Kandla was set up, a
policy aspects which need to be addressed total of only 11 such zones have come into
immediately to ensure that the targets are met. existence. The Exim Policy of 1997-2002 then
7.58 The challenge ahead lies in introduced the more comprehensive and
appropriately sequencing to sustain the liberal SEZ concept, after which a bill was
popular support for reforms and reconciling drafted and and passsed by Parliament in the
the conflicting interests of the various reforms form of the SEZ Act, 2005.
constituencies. The recent debate about
Special Economic Zones (SEZ) illustrates the Environmental Issues
kind of considerations that have to be taken 7.60 Increased and efficient environmental
into account in the formulation of policies. vigilance is an absolute must for containing
Some of the apprehensions against the SEZs the negative environmental impact of
are (a) generation of little new activity as there industrialisation. Industrial pollution is
may be relocation of industries to take concentrated in industries like petroleum
advnatage of tax concessions, (b) revenue refineries, textiles, pulp and paper, industrial
loss, (c) large-scale land acquisition by the chemicals, iron and steel and non metallic
developers which may lead to displacement mineral products. Small-scale industries,
of farmers with meagre compensation, (d) especially foundries, chemical manufacturing
acquisition of prime agricultural land having and brick making, can also be significant
serious implications for food security, (e) polluters. In the power sector, thermal power,
misuse of land by the developers for real which constitutes bulk of the installed capacity
estate and (f) uneven growth aggravating for electricity generation, is an important
regional inequalities. Many of these source of air pollution.
apprehensions, however, could be addressed
7.61 In order to contain the damaging
through appropriate policies and safeguards.
impact of industrialisation on environment,
7.59 SEZs have been established in many Government has initiated various steps (Box
countries as testing grounds for 7.7), for protection, conservation and
implementation of liberal market economy development of the environment. The National
principles. They are viewed as instruments to Environment Policy (NEP) 2006, which was
enhance the acceptability and credibility of approved and adopted in May 2006, intends
transformation policies, to attract domestic to facilitate realization of sustainable
and foreign investment, and generally, for the development by mainstreaming environmental
opening up of the economy. With its genesis concerns in all developmental activities and
in the Export Processing Zones (EPZ), the describing key environmental challenges
SEZs in India seek to promote value addition currently and prospectively facing the country.
component in exports, generate employment Another significant policy development was
and mobilize foreign exchange. EPZs and the Environment Impact Assessment (EIA)
SEZs were employed with considerable Notification, 2006 on September 14, 2006,
success by China and other ASEAN countries which involved a complete re-engineering of
in the 1970s and 1980s to create regional the Environment Impact Assessment (EIA)
islands, where export-oriented manufacturing process and made it more efficient,
could be undertaken. While EPZs in some of decentralized and transparent. A National
these countries had their share of early Clean Development Mechanism Authority

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 Box 7.7 : Major Initiatives to control Environmental Pollution

Notification of general and source-specific standards for emissions and effluents.

Regulating the siting of industries.

Regular monitoring for compliance to environmental standards.

Legal action for non-compliance.

Setting up of clean technology mechanisms in polluting industries.

Setting up of Common Effluent Treatment Plants (CETPs) in industrial estates.

Establishing waste minimization circles (WMC) in clusters of small scale industries.

Implementing recommendations of Charter of Corporate Responsibility for Environmental Protection (CREP)
in 17 categories of highly polluting industries.

Implementing an Eco-mark scheme to encourage production/consumption of environment-friendly products.

Setting up of progressive emission norms at the manufacturing stage for controlling vehicular pollution and
introduction of cleaner fuels like unleaded petrol, low sulphur diesel and compressed natural gas (CNG).

Setting up National Clean Development Mechanism Authority (CDM) as per Kyoto Protocol.

Promoting economic instruments to internalize the costs of pollution and fiscal incentives for pollution
control equipments.

(CDM) has also been set up for the purpose infrastructural impediments, especially, in the
of protecting and improving the quality of power sector.
environment in terms of the Kyoto Protocol.
7.63 Capacity additions through investment
The CDM Authority receives projects for
is critical for accelerating growth in industry.
evaluation and approval for carbon market. Till
The investment scenario looks quite optimistic,
December 2006, host country approval has
particularly with rising domestic savings rates
been accorded to 473 projects facilitating
and FDI inflows. Sustained economic growth,
investment of more than Rs.36,408 crore.
fiscal consolidation and an enabling policy
environment will continue to provide incentive
Outlook to capacity addition in industry and sustaining
its high growth.
7.62 The expected overall annual growth of
industry in the Tenth Plan period (2002-2007) 7.64 Adequate expansion of employment in
at around 8.7 per cent is likely to be short of the industrial sector, particularly in the
the targeted growth rate of 10 per cent for the organized segment, requires attention. The
Plan period. Given the recent performance, formation of appropriate skills through a wide
however, the Eleventh Plan (2007-2012) target variety of vocational training as well as optimal
of 10 per cent annual industrial growth degree of flexibility of labour laws are important
appears eminently achievable. As the country aspects in this regard. Progress on these
enters into the first year of the Eleventh Plan, fronts will determine how much progress is
the sustained growth of the industrial sector made in generating employment in the
is crucially dependent on removing the organized industry in the years to come.

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