Question

Why has the industrial sector performed poorly in the reform period?

Answer 1

Similar to the agricultural sector, industrial sector’s performance was also poor. The poor performance of industrial sector may be attributable to the following reasons:

1. Cheaper Imports: The demand for industrial output reduced due to the cheaper imports. The imports from the developed countries were cheaper due to the removal of import tariffs. These cheaper and quality foreign imports led to the fall in the demand of domestic goods.

2. Lack of Investment: Due to the lack of investment in infrastructure facilities (including power supply) the domestic firms could not compete with their developed foreign counterparts in terms of cost of production and quality of goods. The inadequate infrastructural investment pushed up the cost of production of the domestic producers and, consequently, led to the non-feasibility of their growth prospectus. 

3. High Non-tariffs Barriers by the Developed Countries: It was very difficult to access the developed countries market due to high non-tariff barriers maintained by the developed countries. For instance, US did not remove quota restrictions on imports of textiles from India and China.

4. Vulnerable and Infant Domestic Industries: During the pre-liberalised period, the domestic industries were provided a protective environment to grow and expand. But at the time of liberalisation, the domestic industries were still not developed up to the extent it was thought and consequently, they could not compete with the multi-national companies. The dependence of domestic industries on traditional technologies which were neither cost effective nor quality effective was an important reason for their poor growth. Thus, the domestic industries were adversely affected by liberalisation.