The manufacturing sector grew at an average annual rate of 6% in the 14 years between 1990-91 and 2003-04. This was higher than the 5.8% growth in Industry and the 5.7% GDP growth during this period.

However, manufacturing sector growth has fallen sharply in the last seven years as compared to the first seven years of the reforms period. It has slumped from 7.4% to just 4.7% later.

This sharp slow down in the growth has been due to following reasons: -

1. Cascading Effect of Indirect Taxes on Selling Price of Commodities
In India, the average total incidence of indirect taxes on the selling price of all commodity groups works out to 36.25%. Whereas the custom duties have been brought down over the years (peak customs duty on manufactured items stands at 20%), the government has been increasing the excise duty burden on the manufacturing sector.

2. Higher Cost of Utilities
In India, total electricity costs as a proportion of total manufacturing costs is 10.4%. Losses due to congestion and poor condition of roads estimated at more than Rs. 120 billion. Also, it is well-known that the railways cross subsidize passengers at the expense of freight. This cross subsidization has eroded the cost advantages of rail transport and negatively impacted on costs to industry.

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* Contributed by -
Varun Gupta,
B.E. (Electronics), Mumbai University,
MBA, ICFAI University, Hyderabad,
Currently working as Business Analyst with NSE.IT Ltd., Mumbai.