India needs a policy to bring another round of multifaceted reforms for the industrial sector to have a sustained double-digit output growth in the medium to long term, the Economic Survey today said.
In the short term, the sector is likely to grow at moderate but sustainable rate, the Survey, however, said increasing cost of financing and slowdown in foreign equity inflows in the current financial year are causes for concern.
"Over the medium to long term, to sustain double-digits output growth and reduce the vulnerabilities of the sector, there is a need to put in place a policy framework for embarking on another round of multifaceted reforms," it said.
Expressing concern over the unsatisfactory performance of manufacturing, which is a key driver of the industry, the Survey said India must learn from "economically successful emerging economies" such as China and South Korea that have promoted the sector with robust policies.
"The manufacturing sector, despite being the driver of the industry, has not grown significantly over time in terms of its share in GDP," it said.
The share of Indian manufacturing in world manufacturing is also less than 1.4%, it said, adding the growth of the sector is important for employment generation and sustained domestic supply and exports growth.
"China has been the most successful in building the world's largest manufacturing base by giving special attention to technology development by gearing up FDI policy to promote technology transfer," it said.
On the short term prospects, it said continued buoyancy in corporate sales, comparatively higher credit flow, larger number of investment intentions across sectors and robust merchandise exports so far "are likely to sustain industrial activities in the remaining months of the financial year".
The Survey pointed out that gross capital formation in industry stood at Rs 7,58,620 crore in 2009-10 (calculated on the basis of 2004-05 prices), registering a compounded annual growth of 11.76%.
"Looking at IIP data for the past few months, in the short term the industrial sector is likely to grow at moderate but sustainable rates," it said.
It, however, said the rising input costs may undermine the competitiveness of some sectors and also dampen domestic and foreign demand.
"Persistent high inflation is also leading to rise in average wage prices and this may impact labour intensive industries such as textiles and leather, etc," it said.
The Survey also pointed out that there is a huge gap in terms of required capacity addition needed to catch up with demand in some core sectors despite marginal increases in six core industries -- crude oil, petroleum products, coal, electricity, cement and finished steel this financial year.
