Standing Committee on Finance

The Standing Committee on Finance (SCoF) has highlighted the urgent need for a national action plan to promote balanced industrial growth across India. This initiative aims to address regional disparities and ensure equitable economic development.

Key Observations by the SCoF

1. Stagnation in Disinvestment and PSE Reforms: Despite the 2021 policy to privatize or close loss-making Central Public Sector Enterprises (CPSEs) in non-strategic sectors, no proposals have been approved, leading to stagnant disinvestment plans.

2. Investment Rate Lagging Behind Growth Targets: India's investment rate stands at approximately 31% of GDP, falling short of the 35% required to sustain an 8% annual GDP growth over the next decade.

3. Ineffective State Incentives: While industry is a State subject, central initiatives are crucial. However, incentives for States to reform their PSUs have been underutilized and largely ineffective.

4. Fiscal Stress of States: High indebtedness of many States constrains their ability to invest in infrastructure, industrial development, and balanced growth.

Key Recommendations

1. Structural and Industrial Reforms: Fast-track disinvestment and closure of non-strategic, loss-making CPSEs. Strengthen central incentive packages for State PSU reforms.

2. National Action Plan: Develop a comprehensive plan to ensure balanced industrial growth, reducing regional disparities and promoting equitable development.

3. Fiscal and Investment Strategy: Mobilize public and private investment to raise the investment rate to 35% of GDP, while introducing tailored fiscal reforms for highly indebted States that balance debt reduction with continued infrastructure and social sector investment.

Factors Contributing to Uneven Industrial Growth

• Historical Factors: Colonial-era policies concentrated industries in select regions, leading to persistent regional industrial imbalances.

• Geographical and Infrastructure Challenges: Difficult terrains and poor connectivity in states like the North-East limit large-scale industrial development.

• Skilled Manpower Availability: States with limited educational infrastructure struggle to develop skill-intensive industries.

• Policy and Planning Disparities: Lack of targeted policy support in certain regions hampers industrial growth.

• Agglomeration Effects: Industries tend to cluster in regions with existing infrastructure and skilled labor, reinforcing regional disparities.

Implications of Industrial Imbalance

• Regional Inequality and Developmental Gaps: States with higher industrial concentration have higher income, employment, infrastructure, and GDP, while less-industrial states lag behind.

• Migration and Urban Stress: Industrial hubs attract workers from underdeveloped regions, leading to overcrowding and strain on urban infrastructure.

• Fiscal Disparities and Resource Imbalances: Industrialized states generate higher tax revenues, boosting their ability to fund infrastructure and social services, widening the gap with less-industrial states.

• Federal Friction and Policy Challenges: Uneven industrial growth can cause tensions between the Centre and States over resources, investment policies, and financial incentives.

• Socio-Political and Economic Implications: Persistent industrial imbalance can lead to regional discontent, political marginalization, and social unrest.

Government Initiatives for Boosting Industrial Growth

• Production-Linked Incentive (PLI): To scale up domestic manufacturing capability.

• PM Gati Shakti – National Master Plan: Multimodal connectivity infrastructure project.

• Bharatmala and Sagarmala Projects: To improve connectivity (road and sea).

• Start-up India: To catalyze the startup culture in India.

• Make in India 2.0: To transform India into a global design and manufacturing hub.

• Atmanirbhar Bharat Campaign: To reduce import dependence.

• Special Economic Zones (SEZs): To create additional economic activity and boost the export of goods and services.

• MSME Innovative Scheme: To promote the complete value chain from developing ideas into innovation through incubation and design interventions.

Measures for Ensuring Balanced Industrial Growth

• Industrial Location Policy & Incentives: Formulate a comprehensive industrial location policy to guide investments toward underdeveloped and lagging regions.

• Targeted Infrastructure Development: Invest in transport corridors, industrial parks, logistics hubs, reliable power, and digital infrastructure in industrially-backward states.

• Skill Development & Human Capital: Set up technical institutes, vocational centers, and reskilling programs in less-developed regions.

• Cluster-Based & Ecosystem Development: Promote sector-specific industrial clusters for economies of scale, supply chain integration, and innovation.

• Policy Coordination & Centre-State Collaboration: Strengthen cooperative federalism by aligning central policies with state industrial plans, ensuring resources, regulatory support, and investments.

Addressing the uneven industrial growth in India requires coordinated efforts between the Centre and States, focusing on infrastructure development, skill enhancement, fiscal incentives, and fostering industrial clusters in underdeveloped regions. Implementing these measures will contribute to reducing regional disparities and promoting inclusive economic growth