India's Finance Minister Pranab Mukherjee
India's Finance Minister Pranab MukherjeeReuters

The Economic Survey 2011-12, tabled in the Lok Sabha Thursday by Finance Minister Pranab Mukherjee, has projected the industrial-sector growth during the current financial year to be between 4 to 5%.

At this rate, says the survey, the annual growth rate will be less than the annual growth rates achieved in the recent past and far below the potential growth rate.

The survey has said that the challenge for the sector in the short term would be to shore up of business sentiments, spur investment in productive activities and identify bottlenecks that can be removed in a reasonably short period of time.

With the easing of headline inflation, moderation in commodities prices in the international market and revival of manufacturing performance in recent months in the major economies, India's industrial sector is expected to rebound during the next financial year.

According to the survey, the long-term average annual growth of industries comprising mining, manufacturing and electricity has in general remained aligned with the overall GDP growth rate during the post reform period between 1991-92 and 2011-12, averaging 6.7% as against GDP growth of 6.9%.

The share of industry (including construction) and manufacturing in GDP remained generally stable at 28% and in the 14-16% range respectively during this period. The share of industry in total employment, however, increased from 16.2% in 1999-2000 to 21.9% in 2009-10, largely on account of expansion of employment opportunity in the construction sector from 17.5 million in 1999-2000 to 44.2 million in 2009-10.

The survey has highlighted that the industrial growth, measures in terms of Index of Industrial Production (IIP) during April-December 2011, reached 3.6% compared to a growth of 8.3% in the corresponding period of previous year.

There was a contraction in production in the mining sector, particularly in the coal and natural gas segments. The electricity sector witnessed and improvement in its growth in the current year. Growth also moderated in the manufacturing sector from 9.0% in April-Dec. 2010 to 3.9% in April-Dec. 2011.

The survey points out that the basic goods and non-durables goods had a relatively better growth at 6.1% compared to the growth in the corresponding period of previous year. There was a moderation in growth in other segments of IIP and negative growth was observed in capital goods and intermediates segments.

As per the Economic Survey 2011-12, the share of Gross Capital Formation (GCF) in industry as percent to the overall GCF, after peaking to a level of 54.9% in 2007-08, moderated to 48.3% in 2010-11 the manufacturing GCF growth rate declined to 7% in 2010-11 from 42% in 2009-10.

In the current year, the rate of growth of banking sector credit flow to industries moderated significantly. On year-on-year basis, credit growth to industry decelerated to 19.8% in Dec. 2011 from 31.6% in Dec. 2010. Moderation in rate of growth of credit was particularly large for the infrastructure and manufacturing sectors.

The survey has stated that in medium to long term, several challenges remains for the sector. The Planning Commission has projected growth rates of 9.8% and 11.5% in manufacturing sector required to achieve 9 % and 9.5% economy growth respectively.