Why India’s industrials sector had stunted growth


Nov. 28 2014, Updated 4:00 p.m. ET

Industrials sector had stunted growth

The industrial sector in India includes the manufacturing, mining, electricity, and construction industries. The mining industry includes mining and quarrying. Electricity includes electricity, gas, and water supply.

While the agricultural and services sectors saw a consistent fall and rise in their share in India’s output, respectively, the industrials sector contributed a near steady 26–29% to India’s gross domestic product (or GDP) over the past decade.

After the economic slowdown hit, the sector was resilient. It continued to contribute more than 28% to the country’s economy in fiscal year 2012. However, its contribution fell for two successive years. According to the latest reading for fiscal year 2014, it’s a little over 26%.

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An economic survey of India for 2013–2014 attributed this slowdown to “a combination of supply-side and demand-side constraints.” The survey also highlighted the slow growth in the industrials sector. The survey stated that “industry grew by just 1% in 2012–2013 and slowed further in 2013–2014, posting a modest increase of 0.4%.”

Contribution to GDP

Out of the 26.1% contribution to economic output in 2013–2014, manufacturing contributed 14.9% to the overall GDP. Construction contributed 7.4%. The other two sectors contributed 1.9% each.

A look at their respective growth rates shows that a slowdown in manufacturing and construction activity was mainly responsible for the sector’s slowing growth.

Manufacturing saw double digit growth in fiscal year 2006, 2007, and 2010. It saw muted growth of 1.14% in fiscal year 2013 and -0.71% in fiscal year 2014.

Construction saw double digit growth for five years in the past decade. It slowed down to a 1.11% and 1.16% rise in fiscal year 2013 and 2014, respectively. Mining and quarrying barely saw any growth in fiscal year 2012. It registered negative growth in the two succeeding years.

Exchange-traded funds (or ETFs) that have exposure to Indian energy companies and industrials include the PowerShares India Portfolio (PIN) and the EGShares India Infrastructure ETF (INXX), respectively.

For broader exposure to India, you can invest in the WisdomTree India Earnings Fund (EPI), the iShares MSCI India ETF (INDA), and the iShares S&P India Nifty 50 Index Fund (INDY).

In the next part of this series, we’ll discuss why India’s manufacturing growth has been so slow.


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