Fifty years ago, the presence of industry distinguished so-called developed countries from less developed countries. This distinction has become less marked with shifts in demand and the acceleration of technological change in services, especially in information technology. The share of industry in the national income of industrialized countries has shrunk, as the share of services has gone up. In the Organization for Economic Cooperation and Development (OECD), the average share of industry in 2007 was just 22 percent, with services accounting for virtually all of the remainder of their economies.
Indian industry, however, has not followed this model. Value-added manufacturing accounted for a relatively low 16 percent of India’s national income in 2008-09, and on this basis, India would hardly count as a major industrial country. But these figures understate the volume of output. While the US and China each account for about a fifth of world industrial production, India already probably accounts for 7-8 percent. With India’s GDP growth growing more rapidly than the world average, its share in world manufacturing output will increase.
Indian industry is dominated by three sectors — chemicals and pharmaceuticals, metals and engineering, and textiles. Chemicals account for almost 30 percent of manufacturing output, followed by machinery (16 percent), metals (12 percent), textiles (11 percent), vehicles, cement and drinks and tobacco (6-7 percent each). India’s oil industry, which refined 152 million tons in 2008-09, also provides petrochemical feedstocks that go into plastics and fibers.
India abolished product patents in 1971, and did not reintroduce them until 2006. During that period, thousands of small firms came up to break patents and produce drugs. The patent-breaking has now stopped, but India continues to be a major producer and exporter of cheap generic drugs, notably to Africa.
India has plentiful iron ore and bauxite, from which it produces steel and aluminum; but its copper production is largely based on imported concentrates. These metals are the basis of a substantial engineering industry. India, with its low incomes, has been a good market for cheap cars, motorcycles and scooters; their production has created a market for automobile parts. Now, both the vehicle and component industries have become significant exporters. Foreign car firms are producing cars in India and sourcing parts from India.
India was the world’s leading producer of cotton textiles before the industrial revolution. This handicraft industry declined after the industrial revolution, but modern textile mills were set up in Mumbai and surrounding cotton-growing regions from the middle of the 19th century. Textiles still account for a substantial portion of India’s export receipts, while local demand supports a large industry.
India’s exports of industrial goods exceeded $100 billion in 2008-09; two-thirds went to other developing countries, principally to the Middle East and to countries in the Indian Ocean area. Its major industries are also major export industries. While all three industry groups are major exporters, their relative importance in exports and in production differs.
The most important export industry is engineering. Exports in 2008-09 came to $40.7 billion. Prominent among them are exports of automobiles (including tractors) and machinery, each accounting for a quarter of engineering exports. Chemicals and pharmaceuticals come next, with exports of $20.5 billion. Textile exports came to $17.7 billion in 2008-09. The textile industry has faced stiff competition from China, but has commanded an important niche, especially in low-cost garments.
India also exports cut gems and leather. For a while, Indians have had a weakness for precious metals and jewelry, made by artisans skilled in cutting and shaping small jewels. This is not done with small electric lathes and, thanks to price competitiveness, Indian gem-cutters have now largely taken over this activity.
Until the middle of the last century, industry was concentrated in and near the three major ports — Mumbai, Chennai and Kolkata. But it has since migrated to more than 100 smaller cities, many of which specialize in specific fields. For instance, Ludhiana focuses on machinery and sports goods; Rajkot in irrigation pumps; Tiruppur in textiles; and the Pune area in automobiles. Industrialization, once concentrated around Mumbai, has spread northward to Gujarat and southward to Andhra Pradesh, Karnataka and Tamil Nadu. After the liberalization of the economy in the early 1990s, industry has moved closer to the ports of western and southern India, and the peninsula has become richer and more industrialized.
In 2002, India experienced an investment boom; gross investment went up from 25 percent in 2002-03 to 39 percent in 2007-08. Manufacturing growth in those years, led by engineering, averaged 7.3 percent. This has now slowed, given overcapacity and falling global demand. But India’s industry will retain its traditional strengths in engineering, chemicals and pharmaceuticals.
There is a growing political consensus that manufacturing needs to develop to ensure employment for India’s young population. This political push, coupled with the price competitiveness that India offers, will provide opportunities for foreign firms both in establishing operations in India and in sourcing manufactured goods — not just services — from India.