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> Policies> economic survey 2000-01
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Economic Survey 2000-2001
[Review of Developments]
Supply Side: Production
Industry
1.27 The overall industrial growth path in the 1990s has been marked by cyclical fluctuations with the peak level of industrial growth being 13 per cent in 1995-96. Since 1996-97, industrial growth has remained around 6.5 per cent annually except for a drop to 4.1 per cent in 1998-99. Some of the factors responsible for this cyclical behavior of industrial growth during the last few years are, high interest rate environment, lack of demand for capital goods, business cycle, inherent adjustment lags in industrial restructuring and infrastructural constraints, particularly for power, roads, telecommunications and transport.
1.28 According to the Index of Industrial Production (IIP), overall industrial growth was 5.7 per cent in April-December 2000 (compared to 6.4 per cent in April-December 1999) contributed by a growth of 4.1 per cent in mining, 5.9 per cent in manufacturing and 4.8 per cent in electricity. The growth rate of manufacturing in April-December 2000 at 5.9 per cent was lower than 7 per cent registered in April-December 1999. The growth rate of electricity generation in April-December 2000 at 4.8 per cent was significantly lower than 7.7 per cent achieved in April-December 1999. Only the mining sector was able to improve its growth rate from 0.5 per cent in April-December 1999 to 4.1 per cent in April-December 2000.
1.29 Mixed trends were noted while analysing industrial production according to use-based classification. While growth rates of both durable and non-durable consumer goods accelerated during the current year, there was deceleration in the growth rate of basic, capital and intermediate goods. The downward trends in the growth rates of capital goods and intermediate goods indicate that there is lack of sufficient investment demand. The high growth in the consumer goods sector continues to be a strength and with greater industrial restructuring and more favorable internal and external investment environment can lead to higher growth momentum in other sectors of the industry.
1.30 As regards the growth rates of broad manufacturing groups, the metal products and parts (except machinery & equipment) group registered a growth rate of 22.9 per cent in April-December 2000. The other groups to register double-digit growth were rubber, plastic, petroleum and coal products (10.4 per cent) and leather and leather & fur products (10.3 per cent). The other better performing groups were food products (9.4 per cent), textile products (8.4 per cent), machinery and equipment other than transport equipment (8.3 per cent) and other manufacturing industries (8.2 per cent). Only two groups viz. paper and paper products and print, publication & allied industries (-11.3 per cent) and non-metallic mineral products (-0.3 per cent) registered negative growth.
1.31 After decelerating to 4.1 per cent in 1998-99, industrial growth improved to 6.5 per cent in 1999-2000. To consolidate the higher growth momentum, the Union Budget for 2000-01 announced a number of policy measures. These included the following:
Rationalisation of excise duty by introduction of CENVAT and reduction in the number of excise rates.
Permitting enhancement of the Foreign Institutional Investment (FII) limit to 40 per cent of total equity through a special resolution by the shareholders.
Raising of the limit for providing collateral to obtain finance for small-scale industries from Rs. 1 lakh to Rs. 5 lakh .
Extension of existing tax holiday benefits for small-scale industries and industrial units set up in industrially backward states and districts by another two years, i.e. till 31st March 2002.
Concession to the entertainment industry through reduction of import duty on cinematic camera and other related equipment.
1.32 In pursuance of Government’s commitment to further facilitate investment in Indian industry, foreign direct investment has been permitted through automatic route for all industries except for a few specified items and situations. Non-Banking financial companies have been allowed to hold foreign equity up to 100% if they are the holding companies. Their subsidiaries, which are the operating companies, have also been allowed to hold foreign equity up to 75%. To facilitate the setting up and operation of such subsidiaries, Government has further allowed holding companies with a minimum capital of US$ 50 million to set up 100% downstream subsidiaries undertaking specific non-banking financial activities with a minimum capital of US $ 5 million. Such a subsidiary, however, would be required to disinvest its equity to the minimum extent of 25% through a public offering only, within a period of 3 years.
1.33 An Expert Group constituted by Government to review the Industries Development and Regulation Act 1951, has proposed enactment of a new Industry Act, which would focus on promotion and development of industry instead of regulation. The Government is examining the feasibility of framing a new enactment in this regard.
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