Despite a fall in the growth rate of industrial production last year, economic liberalisation has positively influenced the performance of the sector.
From a mere 0.6 per cent in 1991-92, the annual growth rate of the index of industrial production has gone up to about 12 per cent in 1995-96.
Admittedly, the two digit growth of the industrial sector formed the core of the economic reforms package, but that was not all. Reforms also had inherent in it the long-term sustainability of the sector.
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The then finance minister, Manmohan Singh, reapeatedly reminded Indian industrialists of the competition both at home and abroad.
Economic compulsions had forced Manmohan Singh to ease out protectiveness of the domestic economy by reducing custom rates for a number of commodities.
But, Singh had seen in it the rare opportunity for increasing the domestic sectors competitiveness. Lowering import duty on capital goods allowed them to upgrade their technology, he argued.
But have the Indian companies utilised this opportunity? A study of 50 large private sector companies suggests that, though there has been significant rise in capital goods import of late, in absolute terms, it was far short of the amount required to bring about a drastic change in the production system.
Aggregate capital goods import of these companies has more than doubled in 1995-96 as against 1994-95.
It increased by 117.3 per cent from Rs 1,452.13 crore to Rs 3,155.31 crore.
Only 15 out of the 50 companies witnessed a fall in their capital goods import during the above period.
But, this is not enough to make a lasting impact on the sector. Despite such a huge rise in aggregate imports of capital goods, this accounted for just about 28 per cent of these companies total expenses on the same.
As in the past, imports of raw materials by the companies accounted for the lion share
with more than 55 per cent in 1995-96.
While the share of capital goods in total imports has risen in 1995-96 as compared to 1994-95, the share of raw materials has fallen.
But, much of the rise in capital goods import was confined to only a few select companies. Reliance Industries with Rs 1,275.57 crore worth of import of capital goods topped the list. It accounted for more than 40 per cent of the total imports in 1995-96.
Reliance Industries had more than tripled its imports in one single year from Rs 386.30 crore in 1994-95 when compared with the Rs 1,274.57 crore it made in 1995-96.
Ispat Industries with imports worth Rs 231.06 crore stood second with only seven per cent share in the aggregate, followed by Telco and Gujarat State Fertiliser Corporation.
Together, the top five companies shared among them nearly two-third of the aggregate capital goods import of the 50 companies.
If Reliance Industries is excluded from the list, the growth rate of capital goods import of the sample companies falls down to about 76 per cent only and their aggregate imports decline to Rs 1,881 crore.
At less than Rs 2,000 crore, the imports were not likely to have any serious impact on the production system of the sample companies, many of which have large assets base.
Telco, for example, had a huge asset base of Rs 5,895 crore in 1995-96, CESC, Rs 4,798 crore, Grasim Industries, Rs 4,324 crore and Ispat Industries, Rs 3,188 crore.
The import trend of the sample companies does not indicate any significant shift towards capital goods.
If foreign technology and machinery were pre-requisites for improving competitiveness, Indian companies seem to have ignored that.