The causes for the slow industrial growth may be categorized into external and internal factors. Some of the external factors are – (a) Wars (b) Acts of God (c) Infrastructural Constraints, and (d) Oil Crisis. Some of the internal factors are – (a) Restraints and control on licensing (b) Stagnancy in agricultural production (c) Slowdown in public investment (d) Income distribution and the pattern of demand (e) Failure of land reform measures (f) Technology
The slowdown in industrial growth during 2000-2001 and 2001-2002 owes to a number of structural and cyclical factors.
The Structural factors are as follows:-
The adjustment process in response to increased competition in the form of mergers and acquisitions is taking longer time than expected.
Infrastructural bottlenecks and high costs and inadequate and unreliable supply of services in transport, communications and the power sector.
Low levels of productivity in the industry because of low volumes and inability to reap economies of scale, outdated technology and restricted labor laws.
Lower speculative demand for sectors like automobiles and real estate due to expectation of lower prices and reduction of taxes and duties in the short and medium term.
High real interest rates.
The Cyclical factors are as follows:-
Periodic investment cycles, reinforced by government’s decision to reduce customs duties to levels in East Asian countries by 2004, which might have deferred investment decisions.
Business cycles affecting demand of some cyclical industries like cement, automobiles and steel.
There is no pent up demand for consumer durables. The above cycles have been reinforced by reduction in inventory levels resulting from the introduction of e-business and e-commerce and better management of supply and demand by industry to cut costs.
