Manufacturing

Manufacturing

Cotton textiles is a well-established manufacturing industry and employs more workers than any other sector. Production in FY 1992 was 19 billion square meters of cloth (see table 25, Appendix). In Indian textile mills, yarn is spun, woven into fabrics, and processed under one roof. Production as a share of the manufacturing industry fell from 79 percent in 1951 to under 30 percent in the early 1990s as a result of curbs on capacity expansion and new equipment and differential excise duties. The main export market is Russia and other former Soviet republics. The power-loom sector forms the largest portion of the decentralized part of the textile industry. It expanded from 24,000 units in 1951 to 800,000 units in 1989. Power-loom fabric dominates India's garment export industry. There is also a substantial handloom sector, which provides employment in rural areas (see fig. 10).

Steel and Aluminum

After independence, successive governments placed great emphasis on the development of a steel industry. In FY 1991, the six major plants, of which five were in the public sector, produced 10 million tons. The rest of the steel production, 4.7 million tons, came from 180 small plants, almost all of which were in the private sector. Steel production more than doubled during the 1980s but still did not meet demand in FY 1991, when 2.7 million tons were imported. In the mid-1990s, the government is seeking private-sector investment in new steel plants. Production is projected to increase substantially as the result of plans to set up a 1 million ton steel plant and three pig-iron plants totalling 600,000 tons capacity in West Bengal, with Chinese technical assistance and financial investment.

The aluminum industry grew from 5,000 tons a year at independence to 483,000 tons in FY 1992, of which 113,000 tons were exported. Analysts believe the industry has a good long-term future because of India's abundant supply of bauxite.

Fertilizer and Petrochemicals

The fertilizer industry is another major industrial sector. In FY 1991, production reached 7.4 million tons of nitrogen and 2.6 million tons of phosphate. In the early 1990s, an increasing share of fertilizer production came from private-sector plants. Substantial imports were necessary in FY 1990, but the prospects for expansion of domestic production are good.

In the early 1990s, the petrochemical industry was expanding rapidly. It produces a wide variety of thermoplastics, elastomers, synthetic fibers, and chemicals. Substantial imports, however, are required to meet domestic demand. Analysts forecast a major expansion in production during the 1990s.

Electronics and Motor Vehicles

The engineering sector is large and varied and provides around 12 percent of India's exports in the mid-1990s. Two subsectors, electronics and motor vehicles, are the most dynamic.

Electronics companies benefited from the economic liberalization policies of the 1980s, including the loosening of restrictions on technology and component imports, delicensing, foreign investment, and reduction of excise duties. Output from electronics plants grew from Rs1.8 billion in FY 1970 to Rs8.1 billion in FY 1980 and to Rs123 billion in FY 1992. Most of the expansion took place in the production of computers and consumer electronics.

Computer production rose from 7,500 units in 1985 to 60,000 units in 1988 and to an estimated 200,000 units in 1992. During this period, major advances were made in the domestic computer industry that led to further sales.

Consumer electronics account for about 30 percent of total electronics production. In FY 1990, production included 5 million television sets, 6 million radios, 5 million tape recorders, 5 million electronic watches, and 140,000 video cassette recorders.

A similar expansion occurred in the motor vehicle industry. Until the 1980s, the government considered automobiles an unnecessary luxury and discouraged their production and use. Production rose from 30,000 cars in FY 1980 to 181,000 cars in FY 1990.

The largest company, Maruti, which is publicly owned, exports some automobiles to Eastern Europe and to France and became a net foreign-exchange earner in FY 1991. The production of other motor vehicles is also expanding. In FY 1990, India produced 176,000 commercial vehicles, such as trucks and buses, and 1.8 million two-wheeled motor vehicles. Following the government's abolition of the manufacturing licensing system in March 1993, British, French, German, Italian, and United States manufacturers and firms in the Republic of Korea (South Korea) announced they would join Japanese and other South Korean companies already operating in India in joint-venture passenger car production in 1995. The growth of the Indian middle class sustains such industrial expansion and is forcing old-line domestic companies, such as Hindustan Motors, to become more competitive.

Construction

Construction contributes 5 to 6 percent of GDP and employs a similar proportion of the organized labor force plus large numbers of people in the informal sector. In the early 1990s, construction absorbed around 40 percent of public-sector plan outlays, and more than 1 million workers were engaged in public-sector construction projects. Indian firms also won many construction contracts in the Middle East during the 1980s and early 1990s. Most companies are small and lack access to modern equipment.

House building has not been a priority of the government, and a housing shortage persists in both urban and rural areas. Analysts believe that one-third of the population of big cities live in areas officially regarded as slums.

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