Industrial Growth Pattern in

India (4 Phases)
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The industrial growth pattern in India can be divided into four

phases as explained below:
1. First Phase (1951-65): Strong Industrial Base:
The first phase of industrial growth consists of the first three plan
periods which had build a strong industrial base in India. During this
phase, huge investments were made in major industries like iron
and steel, heavy engineering and machine building industries. The
annual compound growth rate of industrial production during the
first three plan periods moved between 5.7 per cent to 9.0 percent.
The capital goods industries had registered its annual average
compound growth rate between 9.8 per cent to 19.6 per cent during
this period. Again the annual rate of growth of basic industries
moved between 4.7 per cent to 12.1 per cent over the same period.
Thus, a strong industrial base was laid during the first phase
covering the first three plan periods.
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2. Second Phase (1965-80): Deceleration and Retrogression:

The second phase of industrial growth covers the period of three

Ad-hoc Annual Plans, Fourth Plan and Fifth Plan. The annual
compound growth rate in industrial production declined from 9.0 per
cent during the Third Plan to only 4,1 per cent covering the period
of 1965 to 1976. In 1976-77, the annual rate of growth of industrial
output was 6.1 per cent. In 1979-80, a negative annual growth rate
of () 1.6 per cent was recorded in respect of industrial outputs as
the index of industrial production in this year (Base 1970 = 100) has
declined to 148.2 as compared to 150.7 in 1978-79.
The industrial sector faced a structural retrogression during the
second phase. The capital goods industries registered its annual
average growth rate of only 2.6 per cent during the second phase
Fifth Plan recorded the annual growth rate of 5.7 per cent which
was far below as compared to that of first three five year plans. For,
basic industries, the annual growth rate during the second phase
was far below as compared to that of Third Plan. Thus basic
industries were engaged in the production of ferrous metal groups,
construction materials, mechanical engineering industries etc.
Causes of Deceleration and Retrogression:
ADVERTISEMENTS:

The causes of deceleration and structural retrogression during

the second phase are;

(a) The wars of 1962, 1965 and 1971. During this period investment
was made into unproductive uses. Successive droughts of 1965-67
and 1971-73, and oil crisis of 1973 was also responsible for supply
constraints.
(b) Considerable slackening of real investment;
(c) Unequal distribution of income in favour of the rich followed by
stagnation in demand for consumer goods;
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(d) Unsatisfactory performance of the agricultural sector;

(e) Policy constraints and bureaucratic obstacles on industrial
growth;
(f) Conflicts in the dominant coalition between proprietary classes,
capitalist class and the class representing rich agricultural farmers.
3. Third Phase: Industrial Recovery in Eighties (1981 to 1991):
ADVERTISEMENTS:

The third phase of industrial growth covers the period of eighties

consisting of both Sixth and Seventh Plan. This period of eighties
experienced industrial recovery. During the period 1981-85, the
average annual rate of growth of industrial production was
accelerated to 7.0 per cent which further increased to 8.6 per cent

during 1985-90. In 1990-91 also, the annual rate of industrial growth

was registered at 9.0 per cent.
The growth rate for consumer durable goods increased to 16.9
percent in 1985-89. In 1981-90, there was a set back as the
segment recorded only 1.7 per cent growth rate and then the same
rate again shot up to 14.8 per cent in 1990-91.
The basic goods industries maintained the annual average growth
rate of 8.8 and 8.9 per cent during 1980-85 and 1985-89
respectively. But gradually declined to 5.4 per cent and 3.8 per cent
in 1989-90 and 1990-91 respectively. The capital goods industries
recorded 6.3 per cent annual rate of growth during 1980-85 which
experienced increase in its growth rate of 13.0 per cent in 1985-89
and then significantly 24.0 percent in 1989-90. The growth rate of
capital goods was 17.4 per cent in 1990-91.
Thus during this third phase, there is a clear shift in the pattern of
industrialisation in the country. Looking at the growth of different
product group in the manufacturing sector, chemicals,
petrochemicals and allied industries recorded a faster rate as
compared to others. During this period, the production of chemicals
and chemical product industries, expanded at an annual average
rate of 11.19 per cent as compared to that of only 5.47 per cent in
machine building sector.

Moreover, during this period, iron and steel, basic metal and alloys
and metal products recorded only 5.15 percent 4.94 per cent and
3.95 per cent. It shows a clear shift in the growth pattern of the
industrial sector during eighties (Third Phase) as compared to two
earlier phases.
Causes of Industrial Recovery:
The main factors which were responsible for the industrial
recovery during eighties are described as under:
(a) Introduction of new industrial policy and liberal fiscal period.
(b) Higher contribution of agricultural sector in some of the regions
in the country which helped in raising the demand for industrial
inputs used for agricultural production.
(c) Revival of investment in the infrastructure sectors and its effects
in raising the degree of efficiency of the industrial sector.
4. Fourth Phase: Industrial Retrogression followed by an
Upturn and Downturn Nineties (1991-92 to 1997-98):
The fourth phase of industrial growth covers the early part of
nineties, i.e., from 1991-92 to 1997-98. This short period
experienced a sharp industrial retrogression followed by an
immediate upturn in the industrial growth of the country.
During 1991-92, the country had a bitter experience of negative
growth rate of () 0.10 per cent as compared to that of 8.5 per cent

in 1990-91. This is the clear evidence of sharp industrial

retrogression in the country.
But after that in 1995-96 the country experienced an industrial
upturn trend as annual growth rate during this year stood at 11,7
per cent, During the year 1996-97 industrial output has increased
by 7.1 per cent and further 8.6 per cent in 1997-98.
The industrial growth rates by use-based industrial classification
again showed downward trend from April to Feb. 1997 to 7.2 and
10.2 per cent in April to Feb. 1998. The growth rate of consumer
non- durables decreased to 4.2 per cent and 2.4 per cent during
April-Feb. 1996-97 and 1997-98 respectively. The growth rate of
capital goods industry declined to 7.2 per cent in 1996-97 and to 1.8
per cent in 1997-98. During the same period, the general growth
rate of industrial production declined from 7.7 per cent in 1996-97 to
only 4.7 per cent in 1997-98.
Causes of Industrial Slow down:
The factors responsible for industrial slow down in the fourth
phase are summarized as below:
(a) Decline in the growth of export to 4.6 per cent in the first eight
months between April and November 1997.
(b) The impact of the tight money policy followed in 1995-96 when
the monetary expansion was about 13.7 per cent;

(c) Significant build up industrial capacity in the first phase of

liberalization;
(d) In some cases the rate of demand growth was overestimated.
Signs of Sustained Industrial Recovery in 1999-2000:
The acceleration of growth rates in various sectors of the economy
underline the significance of industrial recovery in the current year
and cyclical downturn.
However, following are some of the major indicators of
industrial recovery in recent years:
(a) Overall industrial output of the country i.e. 6.2 per cent in AprilDecember 1999 as compared to that of only 3.7 per cent in AprilDecember 1998.
(b) The position of electricity generation remained much better in
1999-2000.
(c) Manufacturing segment of industrial sector has grown by 6.7 per
cent in April to December 1998.
(d) As per use based classification, basic goods, intermediate
goods and consumer goods, are having higher growth in 19992000.
(e) Non-metallic mineral products, machinery and equipment, wool,
leather, paper and basic chemicals are some of the industries
growing at more than 10 percent during 1999-2000.

(f) Industries like electricity, crude oil, coal, steel and cement having
a weight of 26.7 per cent in overall IIP, grew at 8.2 per cent in AprilDecember 1999.
(g) Better corporate performance in 1999-2000 compared to
previous year.
Industrial Slowdown since 2001:
In recent years, the country is experiencing a serious phase of
industrial slowdown during 2000-01 and in 2001- 02. The overall
industrial growth during April- December 2001-02 at 2.3 per cent, is
substantially lower than the 5.8 per cent achieved during the
corresponding period of 2000- 01. In fact, the growth rate of the
industrial sector during the first nine months of 2001-02 is
considered as the lowest during the last ten years.
Industrial slowdown was recorded in all broad sectors such as
manufacturing, electricity and mining an all end use based groups
such as capital goods, intermediate goods, consumer goods both
durables and non-durables. However, the reasons for slowdown in
industrial growth during this period is due to a number of structural
and cyclical factors.
The other reasons are explained below:
1. The adjustment process is industry in response to increased
competition in the form of Mergers and Acquisitions is taking longer
time than expected.

2. Infrastructural bottlenecks and high costs.

3. Unreliable supply of services in transport, communications and
power sector.
4. Low levels of productivity due to low economies of scale, outdated technology and restricted labour laws.
5. Lower speculative demand for sectors like automobiles and real
estate due to expectation of lower prices and reduction of taxes and
duties in the short term period.
6. High interest rates.