Industry 2022-23 | Indian Economy for UPSC CSE PDF Download

 Page 1


CHAPTER
09
The industry holds a prominent position in the Indian economy contributing about 30 
percent of total gross value added in the country. In FY23, the Indian industry faced 
some extraordinary challenges as the Russian-Ukraine conflict broke out. That led to a 
sharp rise in the prices of many commodities. Prices of edible oil, crude oil, fertilisers 
and food grains rose sharply. They remained at elevated levels for several months. The 
risk of another round of supply chain disruptions emerged, but they were not as severe 
as feared. Nonetheless, both the price and the availability of essential commodities had 
the potential to dent the industry’s optimism on consolidating the recovery of FY22 and 
further accelerating it. It is fair to say that the Indian industry acquitted itself rather well 
under trying circumstances. Overall Gross Value Added (GVA) by the Industrial Sector, 
based on data available for the first half of the FY23, rose 3.7 per cent, which is higher 
than the average growth of 2.8 per cent achieved in H1 of the last decade. 
Robust domestic conditions since FY22 have provided a demand stimulus to industrial 
growth. Private Final Consumption Expenditure (PFCE) as a share of GDP in H1 of FY23 
was the highest among all half years, H1 or H2, since FY15. Further, the strong export 
performance of FY22 continued somewhat in the first half of FY23. In this half of the 
year, exports of goods and services as a share of GDP have been the highest since FY16. 
However, the performance began to wane in the first half itself as the Year-on-Year (YoY) 
growth of exports declined from Q1 to Q2 due to persistently high inflation and rising 
interest rates in the advanced economies. The increase in investment demand has emerged 
as another powerful stimulus to industrial growth. It has been triggered by the augmented 
capex of the central government in the current and the previous year as compared to the 
pre-pandemic years. The leap also has crowded in private investment, already upbeat on 
the pent-up demand, export stimulus, and strengthening of the corporate balance sheets.
The supply response of the industry to the demand stimulus has been robust, as seen in 
high-frequency indicators. PMI manufacturing has remained in the expansion zone for 
18 months since July 2021, and its sub-indices indicate an easing of input cost pressures, 
improving supplier delivery times, robust export orders, and future output. While growth 
in the consumer durables component of the Index of Industrial Production (IIP) is on 
account of the release of ‘pent-up’ demand, the increase in capital goods and infrastructure/
construction goods is indicative of the beginnings of a virtuous investment cycle that is 
expected to be led by the private sector. The growth of the eight core industries of coal, 
fertilisers, cement, electricity, steel, and refinery products has held steady, reflecting a 
broad momentum in industrial activity. However, the manufacturing landscape further 
shows uneven growth across various categories, with industries such as automobiles and 
INDUSTRY: STEADY 
RECOVERY
Page 2


CHAPTER
09
The industry holds a prominent position in the Indian economy contributing about 30 
percent of total gross value added in the country. In FY23, the Indian industry faced 
some extraordinary challenges as the Russian-Ukraine conflict broke out. That led to a 
sharp rise in the prices of many commodities. Prices of edible oil, crude oil, fertilisers 
and food grains rose sharply. They remained at elevated levels for several months. The 
risk of another round of supply chain disruptions emerged, but they were not as severe 
as feared. Nonetheless, both the price and the availability of essential commodities had 
the potential to dent the industry’s optimism on consolidating the recovery of FY22 and 
further accelerating it. It is fair to say that the Indian industry acquitted itself rather well 
under trying circumstances. Overall Gross Value Added (GVA) by the Industrial Sector, 
based on data available for the first half of the FY23, rose 3.7 per cent, which is higher 
than the average growth of 2.8 per cent achieved in H1 of the last decade. 
Robust domestic conditions since FY22 have provided a demand stimulus to industrial 
growth. Private Final Consumption Expenditure (PFCE) as a share of GDP in H1 of FY23 
was the highest among all half years, H1 or H2, since FY15. Further, the strong export 
performance of FY22 continued somewhat in the first half of FY23. In this half of the 
year, exports of goods and services as a share of GDP have been the highest since FY16. 
However, the performance began to wane in the first half itself as the Year-on-Year (YoY) 
growth of exports declined from Q1 to Q2 due to persistently high inflation and rising 
interest rates in the advanced economies. The increase in investment demand has emerged 
as another powerful stimulus to industrial growth. It has been triggered by the augmented 
capex of the central government in the current and the previous year as compared to the 
pre-pandemic years. The leap also has crowded in private investment, already upbeat on 
the pent-up demand, export stimulus, and strengthening of the corporate balance sheets.
The supply response of the industry to the demand stimulus has been robust, as seen in 
high-frequency indicators. PMI manufacturing has remained in the expansion zone for 
18 months since July 2021, and its sub-indices indicate an easing of input cost pressures, 
improving supplier delivery times, robust export orders, and future output. While growth 
in the consumer durables component of the Index of Industrial Production (IIP) is on 
account of the release of ‘pent-up’ demand, the increase in capital goods and infrastructure/
construction goods is indicative of the beginnings of a virtuous investment cycle that is 
expected to be led by the private sector. The growth of the eight core industries of coal, 
fertilisers, cement, electricity, steel, and refinery products has held steady, reflecting a 
broad momentum in industrial activity. However, the manufacturing landscape further 
shows uneven growth across various categories, with industries such as automobiles and 
INDUSTRY: STEADY 
RECOVERY
260 Economic Survey 2022-23
electronics registering impressive performances while sectors such as textiles have been 
showing tepid growth, as export demand for these products has been mellowing with the 
slowing of global output and demand. 
Industrial activity has been supported by an upswing in bank credit to the sector. Credit 
to industry started recovering from the beginning of the year and has been growing in 
double digits since July 2022. Credit to MSMEs has also seen a significant increase in 
part, assisted by the introduction of the Emergency Credit Linked Guarantee Scheme 
(ECLGS). While the growth in total credit has been driven by an increase in credit 
demanded by MSMEs, large industries have begun to increase the pace of their credit 
offtake too since the beginning of FY23 as they look to reduce their pace of capital raising 
from volatile debt and equity markets. The robust growth in credit demand combined 
with rising capacity utilisation and investment in manufacturing underscores businesses’ 
optimism regarding future demand. 
Amidst heightened global uncertainty, Foreign Direct Investment (FDI) in the 
manufacturing sector moderated in the first half of FY23. However, inflows stayed well 
above the pre-pandemic levels, driven by structural reforms and measures improving the 
ease of doing business, making India one of the most attractive FDI destinations in the 
world.
The electronics industry continues to ascend in importance as its applications become 
pervasive. Electronics, supported by continuously improving communication services, will 
significantly enhance productivity, efficient service delivery, and social transformation. 
This industry’s significant growth drivers are mobile phones, consumer electronics, and 
industrial electronics. In the mobile phone segment, India has become the second-largest 
mobile phone manufacturer globally, with the production of handsets going up from 6 
crore units in FY15 to 29 crore units in FY21. 
The Indian Pharmaceuticals industry plays a prominent role in the global pharmaceuticals 
industry. India is ranked 3rd worldwide in the production of pharma products by volume 
and 14th by value. The sector is the largest provider of generic medicines globally, 
occupying a 20 per cent share in global supply by volume, and is also the leading vaccine 
manufacturer globally with a market share of 60 per cent. The performance of pharma 
exports has been robust, sustaining positive growth despite the global trade disruptions 
and drop in demand for Covid-19-related treatments. The cumulative FDI in the pharma 
sector crossed the US$ 20 billion mark by September 2022.
The pandemic and the Russia-Ukraine conflict have demonstrated the risk of supply chain 
shocks to the global economic order. As companies adapt their manufacturing and supply 
chain strategies to build resilience, India has a unique opportunity to become a global 
manufacturing hub this decade. In this context, the government’ s Make-in-India initiative 
has facilitated investment, fostered innovation and built world-class infrastructure while 
addressing the gaps in domestic manufacturing capabilities. The Production Linked 
Incentive (PLI) schemes across 14 categories has further complemented it with an 
estimated Capex of around ?3 lakh crore over the next five years and the potential to 
generate over 60 lakh jobs. In the medium term, the scheme will help reduce net imports 
by building domestic manufacturing capacity that will cater to domestic and global needs.
Page 3


CHAPTER
09
The industry holds a prominent position in the Indian economy contributing about 30 
percent of total gross value added in the country. In FY23, the Indian industry faced 
some extraordinary challenges as the Russian-Ukraine conflict broke out. That led to a 
sharp rise in the prices of many commodities. Prices of edible oil, crude oil, fertilisers 
and food grains rose sharply. They remained at elevated levels for several months. The 
risk of another round of supply chain disruptions emerged, but they were not as severe 
as feared. Nonetheless, both the price and the availability of essential commodities had 
the potential to dent the industry’s optimism on consolidating the recovery of FY22 and 
further accelerating it. It is fair to say that the Indian industry acquitted itself rather well 
under trying circumstances. Overall Gross Value Added (GVA) by the Industrial Sector, 
based on data available for the first half of the FY23, rose 3.7 per cent, which is higher 
than the average growth of 2.8 per cent achieved in H1 of the last decade. 
Robust domestic conditions since FY22 have provided a demand stimulus to industrial 
growth. Private Final Consumption Expenditure (PFCE) as a share of GDP in H1 of FY23 
was the highest among all half years, H1 or H2, since FY15. Further, the strong export 
performance of FY22 continued somewhat in the first half of FY23. In this half of the 
year, exports of goods and services as a share of GDP have been the highest since FY16. 
However, the performance began to wane in the first half itself as the Year-on-Year (YoY) 
growth of exports declined from Q1 to Q2 due to persistently high inflation and rising 
interest rates in the advanced economies. The increase in investment demand has emerged 
as another powerful stimulus to industrial growth. It has been triggered by the augmented 
capex of the central government in the current and the previous year as compared to the 
pre-pandemic years. The leap also has crowded in private investment, already upbeat on 
the pent-up demand, export stimulus, and strengthening of the corporate balance sheets.
The supply response of the industry to the demand stimulus has been robust, as seen in 
high-frequency indicators. PMI manufacturing has remained in the expansion zone for 
18 months since July 2021, and its sub-indices indicate an easing of input cost pressures, 
improving supplier delivery times, robust export orders, and future output. While growth 
in the consumer durables component of the Index of Industrial Production (IIP) is on 
account of the release of ‘pent-up’ demand, the increase in capital goods and infrastructure/
construction goods is indicative of the beginnings of a virtuous investment cycle that is 
expected to be led by the private sector. The growth of the eight core industries of coal, 
fertilisers, cement, electricity, steel, and refinery products has held steady, reflecting a 
broad momentum in industrial activity. However, the manufacturing landscape further 
shows uneven growth across various categories, with industries such as automobiles and 
INDUSTRY: STEADY 
RECOVERY
260 Economic Survey 2022-23
electronics registering impressive performances while sectors such as textiles have been 
showing tepid growth, as export demand for these products has been mellowing with the 
slowing of global output and demand. 
Industrial activity has been supported by an upswing in bank credit to the sector. Credit 
to industry started recovering from the beginning of the year and has been growing in 
double digits since July 2022. Credit to MSMEs has also seen a significant increase in 
part, assisted by the introduction of the Emergency Credit Linked Guarantee Scheme 
(ECLGS). While the growth in total credit has been driven by an increase in credit 
demanded by MSMEs, large industries have begun to increase the pace of their credit 
offtake too since the beginning of FY23 as they look to reduce their pace of capital raising 
from volatile debt and equity markets. The robust growth in credit demand combined 
with rising capacity utilisation and investment in manufacturing underscores businesses’ 
optimism regarding future demand. 
Amidst heightened global uncertainty, Foreign Direct Investment (FDI) in the 
manufacturing sector moderated in the first half of FY23. However, inflows stayed well 
above the pre-pandemic levels, driven by structural reforms and measures improving the 
ease of doing business, making India one of the most attractive FDI destinations in the 
world.
The electronics industry continues to ascend in importance as its applications become 
pervasive. Electronics, supported by continuously improving communication services, will 
significantly enhance productivity, efficient service delivery, and social transformation. 
This industry’s significant growth drivers are mobile phones, consumer electronics, and 
industrial electronics. In the mobile phone segment, India has become the second-largest 
mobile phone manufacturer globally, with the production of handsets going up from 6 
crore units in FY15 to 29 crore units in FY21. 
The Indian Pharmaceuticals industry plays a prominent role in the global pharmaceuticals 
industry. India is ranked 3rd worldwide in the production of pharma products by volume 
and 14th by value. The sector is the largest provider of generic medicines globally, 
occupying a 20 per cent share in global supply by volume, and is also the leading vaccine 
manufacturer globally with a market share of 60 per cent. The performance of pharma 
exports has been robust, sustaining positive growth despite the global trade disruptions 
and drop in demand for Covid-19-related treatments. The cumulative FDI in the pharma 
sector crossed the US$ 20 billion mark by September 2022.
The pandemic and the Russia-Ukraine conflict have demonstrated the risk of supply chain 
shocks to the global economic order. As companies adapt their manufacturing and supply 
chain strategies to build resilience, India has a unique opportunity to become a global 
manufacturing hub this decade. In this context, the government’ s Make-in-India initiative 
has facilitated investment, fostered innovation and built world-class infrastructure while 
addressing the gaps in domestic manufacturing capabilities. The Production Linked 
Incentive (PLI) schemes across 14 categories has further complemented it with an 
estimated Capex of around ?3 lakh crore over the next five years and the potential to 
generate over 60 lakh jobs. In the medium term, the scheme will help reduce net imports 
by building domestic manufacturing capacity that will cater to domestic and global needs.
261 Industry: Steady Recovery
Introduction
9.1 Industry holds a prominent position in the Indian economy, accounting for 31 per cent of 
GDP, on average, during FY12 and FY21 and employing over 12.1 crore people. The sector’s 
relevance can be identified through various direct and indirect linkages with other sectors, 
contributing to economic growth and employment. First, it ensures that domestic production 
can accommodate domestic demand and reduces the reliance on imports. Thereby assisting 
in the improvement of trade and current account balances. Second, industrial growth has 
multiplier effects, which translates into employment growth. Some industries, such as textiles 
and construction, have high employment elasticities. Third, industrial growth spurs growth in 
services sectors such as banking, insurance, logistics, etc.
Table IX.1: Growth and Share of Industrial Components (in Per cent)
Growth in Per cent 
Real GV A 
growth in 
FY23 over 
FY22
Real GV A 
growth in 
FY23 over 
FY20
Share in total 
GV A FY23
H1:FY23
H2:FY23 
(Estimated)
Industry 3.7 4.5 4.1 11.1 30.0
 Mining & quarrying 2.2 2.6 2.4 4.4 2.3
 Manufacturing 0.1 3.0 1.6 11.0 17.3
  Electricity, gas, water 
supply & other utility 
services
10.0 7.9 9.0 13.0 2.3
 Construction 11.5 7.3 9.1 12.8 8.1
Overall GV A 9.0 4.7 6.7 9.8 -
Source: National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI)
Note: Data for FY23 presents the First Advance Estimates
9.2 Industrial production is a means to increase industrial income in the country. As measured 
by industrial GVA, growth in industrial income has kept pace with overall GVA growth in the 
economy since the pre-pandemic year of FY20. Manufacturing GV A, which contributes more 
than 50 per cent of industrial GV A, has grown at an even higher rate when compared to overall 
GVA. In FY23, the Industry sector witnessed modest growth of 4.1 per cent compared to the 
strong growth of 10.3 per cent in FY22. This is likely on account of input cost-push pressures, 
supply chain disruptions and the China lockdown impacting the availability of essential inputs 
and slowing the global economy. The fading away of the base effect must have also weighed 
on growth in FY23. On a positive note, estimates of H2:FY23 shows improvement in overall 
industrial growth, especially in the manufacturing sector, both yearly and sequentially. Easing 
input prices and conducive demand conditions will support growth, ceteris paribus.
9.3 In this chapter, the survey will review the performance of the Indian industry in the current 
financial year. It explores the demand stimulants to industrial growth, the supply response of the 
industry, trends in credit to the industry and foreign investment in India’s industrial sector. The 
chapter also addresses the developments in key sub-industries and their challenges. Towards 
the end, it evaluates India’s aspirations and prospects of becoming a key player in global value 
chains.
Page 4


CHAPTER
09
The industry holds a prominent position in the Indian economy contributing about 30 
percent of total gross value added in the country. In FY23, the Indian industry faced 
some extraordinary challenges as the Russian-Ukraine conflict broke out. That led to a 
sharp rise in the prices of many commodities. Prices of edible oil, crude oil, fertilisers 
and food grains rose sharply. They remained at elevated levels for several months. The 
risk of another round of supply chain disruptions emerged, but they were not as severe 
as feared. Nonetheless, both the price and the availability of essential commodities had 
the potential to dent the industry’s optimism on consolidating the recovery of FY22 and 
further accelerating it. It is fair to say that the Indian industry acquitted itself rather well 
under trying circumstances. Overall Gross Value Added (GVA) by the Industrial Sector, 
based on data available for the first half of the FY23, rose 3.7 per cent, which is higher 
than the average growth of 2.8 per cent achieved in H1 of the last decade. 
Robust domestic conditions since FY22 have provided a demand stimulus to industrial 
growth. Private Final Consumption Expenditure (PFCE) as a share of GDP in H1 of FY23 
was the highest among all half years, H1 or H2, since FY15. Further, the strong export 
performance of FY22 continued somewhat in the first half of FY23. In this half of the 
year, exports of goods and services as a share of GDP have been the highest since FY16. 
However, the performance began to wane in the first half itself as the Year-on-Year (YoY) 
growth of exports declined from Q1 to Q2 due to persistently high inflation and rising 
interest rates in the advanced economies. The increase in investment demand has emerged 
as another powerful stimulus to industrial growth. It has been triggered by the augmented 
capex of the central government in the current and the previous year as compared to the 
pre-pandemic years. The leap also has crowded in private investment, already upbeat on 
the pent-up demand, export stimulus, and strengthening of the corporate balance sheets.
The supply response of the industry to the demand stimulus has been robust, as seen in 
high-frequency indicators. PMI manufacturing has remained in the expansion zone for 
18 months since July 2021, and its sub-indices indicate an easing of input cost pressures, 
improving supplier delivery times, robust export orders, and future output. While growth 
in the consumer durables component of the Index of Industrial Production (IIP) is on 
account of the release of ‘pent-up’ demand, the increase in capital goods and infrastructure/
construction goods is indicative of the beginnings of a virtuous investment cycle that is 
expected to be led by the private sector. The growth of the eight core industries of coal, 
fertilisers, cement, electricity, steel, and refinery products has held steady, reflecting a 
broad momentum in industrial activity. However, the manufacturing landscape further 
shows uneven growth across various categories, with industries such as automobiles and 
INDUSTRY: STEADY 
RECOVERY
260 Economic Survey 2022-23
electronics registering impressive performances while sectors such as textiles have been 
showing tepid growth, as export demand for these products has been mellowing with the 
slowing of global output and demand. 
Industrial activity has been supported by an upswing in bank credit to the sector. Credit 
to industry started recovering from the beginning of the year and has been growing in 
double digits since July 2022. Credit to MSMEs has also seen a significant increase in 
part, assisted by the introduction of the Emergency Credit Linked Guarantee Scheme 
(ECLGS). While the growth in total credit has been driven by an increase in credit 
demanded by MSMEs, large industries have begun to increase the pace of their credit 
offtake too since the beginning of FY23 as they look to reduce their pace of capital raising 
from volatile debt and equity markets. The robust growth in credit demand combined 
with rising capacity utilisation and investment in manufacturing underscores businesses’ 
optimism regarding future demand. 
Amidst heightened global uncertainty, Foreign Direct Investment (FDI) in the 
manufacturing sector moderated in the first half of FY23. However, inflows stayed well 
above the pre-pandemic levels, driven by structural reforms and measures improving the 
ease of doing business, making India one of the most attractive FDI destinations in the 
world.
The electronics industry continues to ascend in importance as its applications become 
pervasive. Electronics, supported by continuously improving communication services, will 
significantly enhance productivity, efficient service delivery, and social transformation. 
This industry’s significant growth drivers are mobile phones, consumer electronics, and 
industrial electronics. In the mobile phone segment, India has become the second-largest 
mobile phone manufacturer globally, with the production of handsets going up from 6 
crore units in FY15 to 29 crore units in FY21. 
The Indian Pharmaceuticals industry plays a prominent role in the global pharmaceuticals 
industry. India is ranked 3rd worldwide in the production of pharma products by volume 
and 14th by value. The sector is the largest provider of generic medicines globally, 
occupying a 20 per cent share in global supply by volume, and is also the leading vaccine 
manufacturer globally with a market share of 60 per cent. The performance of pharma 
exports has been robust, sustaining positive growth despite the global trade disruptions 
and drop in demand for Covid-19-related treatments. The cumulative FDI in the pharma 
sector crossed the US$ 20 billion mark by September 2022.
The pandemic and the Russia-Ukraine conflict have demonstrated the risk of supply chain 
shocks to the global economic order. As companies adapt their manufacturing and supply 
chain strategies to build resilience, India has a unique opportunity to become a global 
manufacturing hub this decade. In this context, the government’ s Make-in-India initiative 
has facilitated investment, fostered innovation and built world-class infrastructure while 
addressing the gaps in domestic manufacturing capabilities. The Production Linked 
Incentive (PLI) schemes across 14 categories has further complemented it with an 
estimated Capex of around ?3 lakh crore over the next five years and the potential to 
generate over 60 lakh jobs. In the medium term, the scheme will help reduce net imports 
by building domestic manufacturing capacity that will cater to domestic and global needs.
261 Industry: Steady Recovery
Introduction
9.1 Industry holds a prominent position in the Indian economy, accounting for 31 per cent of 
GDP, on average, during FY12 and FY21 and employing over 12.1 crore people. The sector’s 
relevance can be identified through various direct and indirect linkages with other sectors, 
contributing to economic growth and employment. First, it ensures that domestic production 
can accommodate domestic demand and reduces the reliance on imports. Thereby assisting 
in the improvement of trade and current account balances. Second, industrial growth has 
multiplier effects, which translates into employment growth. Some industries, such as textiles 
and construction, have high employment elasticities. Third, industrial growth spurs growth in 
services sectors such as banking, insurance, logistics, etc.
Table IX.1: Growth and Share of Industrial Components (in Per cent)
Growth in Per cent 
Real GV A 
growth in 
FY23 over 
FY22
Real GV A 
growth in 
FY23 over 
FY20
Share in total 
GV A FY23
H1:FY23
H2:FY23 
(Estimated)
Industry 3.7 4.5 4.1 11.1 30.0
 Mining & quarrying 2.2 2.6 2.4 4.4 2.3
 Manufacturing 0.1 3.0 1.6 11.0 17.3
  Electricity, gas, water 
supply & other utility 
services
10.0 7.9 9.0 13.0 2.3
 Construction 11.5 7.3 9.1 12.8 8.1
Overall GV A 9.0 4.7 6.7 9.8 -
Source: National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI)
Note: Data for FY23 presents the First Advance Estimates
9.2 Industrial production is a means to increase industrial income in the country. As measured 
by industrial GVA, growth in industrial income has kept pace with overall GVA growth in the 
economy since the pre-pandemic year of FY20. Manufacturing GV A, which contributes more 
than 50 per cent of industrial GV A, has grown at an even higher rate when compared to overall 
GVA. In FY23, the Industry sector witnessed modest growth of 4.1 per cent compared to the 
strong growth of 10.3 per cent in FY22. This is likely on account of input cost-push pressures, 
supply chain disruptions and the China lockdown impacting the availability of essential inputs 
and slowing the global economy. The fading away of the base effect must have also weighed 
on growth in FY23. On a positive note, estimates of H2:FY23 shows improvement in overall 
industrial growth, especially in the manufacturing sector, both yearly and sequentially. Easing 
input prices and conducive demand conditions will support growth, ceteris paribus.
9.3 In this chapter, the survey will review the performance of the Indian industry in the current 
financial year. It explores the demand stimulants to industrial growth, the supply response of the 
industry, trends in credit to the industry and foreign investment in India’s industrial sector. The 
chapter also addresses the developments in key sub-industries and their challenges. Towards 
the end, it evaluates India’s aspirations and prospects of becoming a key player in global value 
chains.
262 Economic Survey 2022-23
Demand Stimulus to Industrial Growth
9.4 FY23 began with the month-old Russian-Ukraine conflict showing no signs of relenting. 
As the year draws to a close, the conflict appears to have plateaued, although global commodity 
prices are yet to deescalate to their pre-pandemic levels. Industry, throughout the year, has 
thus faced high input costs imported into the country. Fearing demand impact, the industry has 
been gradually passing on the higher production costs, which has led to sticky but non-rising 
core retail inflation. Non-core retail inflation, on the other hand, comprising food and energy 
components, has been declining as local weather extremities have eased and interventions by 
the government to restrict price rises have proven effective. The consequent decrease in overall 
retail inflation has thus sustained the pent-up consumer demand in the post-pandemic Indian 
economy, inducing an industrial recovery despite the global headwinds. With world commodity 
prices now also on a downward trajectory and showing up in declining rates of India’s wholesale 
inflation, core retail inflation is expected to relent, making domestic consumption demand much 
stronger to further induce industrial growth in the country. PFCE as a share of GDP in H1 of 
FY23 was the highest since FY15.
9.5 Strong external demand also served the Indian industry well in FY22 when manufactured 
exports soared, responding to a rebound in global growth. Trade had also recovered and grown as 
bottlenecks in global supply chains eased. The export stimulus for the Indian economy persisted 
in the first half of FY23. In this half of the year, exports of goods and services as a share of 
GDP have been the highest since FY16. However, the export impulse has been waning in the 
first half itself as the YoY growth of exports has declined from Q1 to Q2 due to persistently 
high inflation and rising interest rates in the advanced economies. Export growth may slow 
further in the second half of the current financial year and remain weak beyond that, too, if the 
global economy falls into recession. However, the strong domestic consumption growth and 
investment revival is expected to keep industrial production humming.
9.6 Indeed, an increase in investment demand has emerged as another powerful stimulus to 
industrial growth. It has been triggered by a jump in the Capex of the central government in 
the current and the previous year as compared to the pre-pandemic years. The leap also has 
crowded-in private investment, already upbeat on the pent-up consumption demand, export 
stimulus, and strengthening of the corporate balance sheets. Capacity utilisation at 74.3 per 
cent in Q1 of FY23 has already reached the tipping point of 75.3 per cent in Q4 of FY22, at 
which investments in building new capacities are undertaken. New Investment announced in the 
manufacturing sector during April-December of FY23 was five times the corresponding level in 
FY20. The surge in investment is also attributable to the policy actions taken by the Government 
over the past several years. A beginning has been made in H1 of FY23, which recorded the 
highest share of Gross Fixed Capital Formation (GFCF) in GDP among all half-years since 
FY15.
Page 5


CHAPTER
09
The industry holds a prominent position in the Indian economy contributing about 30 
percent of total gross value added in the country. In FY23, the Indian industry faced 
some extraordinary challenges as the Russian-Ukraine conflict broke out. That led to a 
sharp rise in the prices of many commodities. Prices of edible oil, crude oil, fertilisers 
and food grains rose sharply. They remained at elevated levels for several months. The 
risk of another round of supply chain disruptions emerged, but they were not as severe 
as feared. Nonetheless, both the price and the availability of essential commodities had 
the potential to dent the industry’s optimism on consolidating the recovery of FY22 and 
further accelerating it. It is fair to say that the Indian industry acquitted itself rather well 
under trying circumstances. Overall Gross Value Added (GVA) by the Industrial Sector, 
based on data available for the first half of the FY23, rose 3.7 per cent, which is higher 
than the average growth of 2.8 per cent achieved in H1 of the last decade. 
Robust domestic conditions since FY22 have provided a demand stimulus to industrial 
growth. Private Final Consumption Expenditure (PFCE) as a share of GDP in H1 of FY23 
was the highest among all half years, H1 or H2, since FY15. Further, the strong export 
performance of FY22 continued somewhat in the first half of FY23. In this half of the 
year, exports of goods and services as a share of GDP have been the highest since FY16. 
However, the performance began to wane in the first half itself as the Year-on-Year (YoY) 
growth of exports declined from Q1 to Q2 due to persistently high inflation and rising 
interest rates in the advanced economies. The increase in investment demand has emerged 
as another powerful stimulus to industrial growth. It has been triggered by the augmented 
capex of the central government in the current and the previous year as compared to the 
pre-pandemic years. The leap also has crowded in private investment, already upbeat on 
the pent-up demand, export stimulus, and strengthening of the corporate balance sheets.
The supply response of the industry to the demand stimulus has been robust, as seen in 
high-frequency indicators. PMI manufacturing has remained in the expansion zone for 
18 months since July 2021, and its sub-indices indicate an easing of input cost pressures, 
improving supplier delivery times, robust export orders, and future output. While growth 
in the consumer durables component of the Index of Industrial Production (IIP) is on 
account of the release of ‘pent-up’ demand, the increase in capital goods and infrastructure/
construction goods is indicative of the beginnings of a virtuous investment cycle that is 
expected to be led by the private sector. The growth of the eight core industries of coal, 
fertilisers, cement, electricity, steel, and refinery products has held steady, reflecting a 
broad momentum in industrial activity. However, the manufacturing landscape further 
shows uneven growth across various categories, with industries such as automobiles and 
INDUSTRY: STEADY 
RECOVERY
260 Economic Survey 2022-23
electronics registering impressive performances while sectors such as textiles have been 
showing tepid growth, as export demand for these products has been mellowing with the 
slowing of global output and demand. 
Industrial activity has been supported by an upswing in bank credit to the sector. Credit 
to industry started recovering from the beginning of the year and has been growing in 
double digits since July 2022. Credit to MSMEs has also seen a significant increase in 
part, assisted by the introduction of the Emergency Credit Linked Guarantee Scheme 
(ECLGS). While the growth in total credit has been driven by an increase in credit 
demanded by MSMEs, large industries have begun to increase the pace of their credit 
offtake too since the beginning of FY23 as they look to reduce their pace of capital raising 
from volatile debt and equity markets. The robust growth in credit demand combined 
with rising capacity utilisation and investment in manufacturing underscores businesses’ 
optimism regarding future demand. 
Amidst heightened global uncertainty, Foreign Direct Investment (FDI) in the 
manufacturing sector moderated in the first half of FY23. However, inflows stayed well 
above the pre-pandemic levels, driven by structural reforms and measures improving the 
ease of doing business, making India one of the most attractive FDI destinations in the 
world.
The electronics industry continues to ascend in importance as its applications become 
pervasive. Electronics, supported by continuously improving communication services, will 
significantly enhance productivity, efficient service delivery, and social transformation. 
This industry’s significant growth drivers are mobile phones, consumer electronics, and 
industrial electronics. In the mobile phone segment, India has become the second-largest 
mobile phone manufacturer globally, with the production of handsets going up from 6 
crore units in FY15 to 29 crore units in FY21. 
The Indian Pharmaceuticals industry plays a prominent role in the global pharmaceuticals 
industry. India is ranked 3rd worldwide in the production of pharma products by volume 
and 14th by value. The sector is the largest provider of generic medicines globally, 
occupying a 20 per cent share in global supply by volume, and is also the leading vaccine 
manufacturer globally with a market share of 60 per cent. The performance of pharma 
exports has been robust, sustaining positive growth despite the global trade disruptions 
and drop in demand for Covid-19-related treatments. The cumulative FDI in the pharma 
sector crossed the US$ 20 billion mark by September 2022.
The pandemic and the Russia-Ukraine conflict have demonstrated the risk of supply chain 
shocks to the global economic order. As companies adapt their manufacturing and supply 
chain strategies to build resilience, India has a unique opportunity to become a global 
manufacturing hub this decade. In this context, the government’ s Make-in-India initiative 
has facilitated investment, fostered innovation and built world-class infrastructure while 
addressing the gaps in domestic manufacturing capabilities. The Production Linked 
Incentive (PLI) schemes across 14 categories has further complemented it with an 
estimated Capex of around ?3 lakh crore over the next five years and the potential to 
generate over 60 lakh jobs. In the medium term, the scheme will help reduce net imports 
by building domestic manufacturing capacity that will cater to domestic and global needs.
261 Industry: Steady Recovery
Introduction
9.1 Industry holds a prominent position in the Indian economy, accounting for 31 per cent of 
GDP, on average, during FY12 and FY21 and employing over 12.1 crore people. The sector’s 
relevance can be identified through various direct and indirect linkages with other sectors, 
contributing to economic growth and employment. First, it ensures that domestic production 
can accommodate domestic demand and reduces the reliance on imports. Thereby assisting 
in the improvement of trade and current account balances. Second, industrial growth has 
multiplier effects, which translates into employment growth. Some industries, such as textiles 
and construction, have high employment elasticities. Third, industrial growth spurs growth in 
services sectors such as banking, insurance, logistics, etc.
Table IX.1: Growth and Share of Industrial Components (in Per cent)
Growth in Per cent 
Real GV A 
growth in 
FY23 over 
FY22
Real GV A 
growth in 
FY23 over 
FY20
Share in total 
GV A FY23
H1:FY23
H2:FY23 
(Estimated)
Industry 3.7 4.5 4.1 11.1 30.0
 Mining & quarrying 2.2 2.6 2.4 4.4 2.3
 Manufacturing 0.1 3.0 1.6 11.0 17.3
  Electricity, gas, water 
supply & other utility 
services
10.0 7.9 9.0 13.0 2.3
 Construction 11.5 7.3 9.1 12.8 8.1
Overall GV A 9.0 4.7 6.7 9.8 -
Source: National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI)
Note: Data for FY23 presents the First Advance Estimates
9.2 Industrial production is a means to increase industrial income in the country. As measured 
by industrial GVA, growth in industrial income has kept pace with overall GVA growth in the 
economy since the pre-pandemic year of FY20. Manufacturing GV A, which contributes more 
than 50 per cent of industrial GV A, has grown at an even higher rate when compared to overall 
GVA. In FY23, the Industry sector witnessed modest growth of 4.1 per cent compared to the 
strong growth of 10.3 per cent in FY22. This is likely on account of input cost-push pressures, 
supply chain disruptions and the China lockdown impacting the availability of essential inputs 
and slowing the global economy. The fading away of the base effect must have also weighed 
on growth in FY23. On a positive note, estimates of H2:FY23 shows improvement in overall 
industrial growth, especially in the manufacturing sector, both yearly and sequentially. Easing 
input prices and conducive demand conditions will support growth, ceteris paribus.
9.3 In this chapter, the survey will review the performance of the Indian industry in the current 
financial year. It explores the demand stimulants to industrial growth, the supply response of the 
industry, trends in credit to the industry and foreign investment in India’s industrial sector. The 
chapter also addresses the developments in key sub-industries and their challenges. Towards 
the end, it evaluates India’s aspirations and prospects of becoming a key player in global value 
chains.
262 Economic Survey 2022-23
Demand Stimulus to Industrial Growth
9.4 FY23 began with the month-old Russian-Ukraine conflict showing no signs of relenting. 
As the year draws to a close, the conflict appears to have plateaued, although global commodity 
prices are yet to deescalate to their pre-pandemic levels. Industry, throughout the year, has 
thus faced high input costs imported into the country. Fearing demand impact, the industry has 
been gradually passing on the higher production costs, which has led to sticky but non-rising 
core retail inflation. Non-core retail inflation, on the other hand, comprising food and energy 
components, has been declining as local weather extremities have eased and interventions by 
the government to restrict price rises have proven effective. The consequent decrease in overall 
retail inflation has thus sustained the pent-up consumer demand in the post-pandemic Indian 
economy, inducing an industrial recovery despite the global headwinds. With world commodity 
prices now also on a downward trajectory and showing up in declining rates of India’s wholesale 
inflation, core retail inflation is expected to relent, making domestic consumption demand much 
stronger to further induce industrial growth in the country. PFCE as a share of GDP in H1 of 
FY23 was the highest since FY15.
9.5 Strong external demand also served the Indian industry well in FY22 when manufactured 
exports soared, responding to a rebound in global growth. Trade had also recovered and grown as 
bottlenecks in global supply chains eased. The export stimulus for the Indian economy persisted 
in the first half of FY23. In this half of the year, exports of goods and services as a share of 
GDP have been the highest since FY16. However, the export impulse has been waning in the 
first half itself as the YoY growth of exports has declined from Q1 to Q2 due to persistently 
high inflation and rising interest rates in the advanced economies. Export growth may slow 
further in the second half of the current financial year and remain weak beyond that, too, if the 
global economy falls into recession. However, the strong domestic consumption growth and 
investment revival is expected to keep industrial production humming.
9.6 Indeed, an increase in investment demand has emerged as another powerful stimulus to 
industrial growth. It has been triggered by a jump in the Capex of the central government in 
the current and the previous year as compared to the pre-pandemic years. The leap also has 
crowded-in private investment, already upbeat on the pent-up consumption demand, export 
stimulus, and strengthening of the corporate balance sheets. Capacity utilisation at 74.3 per 
cent in Q1 of FY23 has already reached the tipping point of 75.3 per cent in Q4 of FY22, at 
which investments in building new capacities are undertaken. New Investment announced in the 
manufacturing sector during April-December of FY23 was five times the corresponding level in 
FY20. The surge in investment is also attributable to the policy actions taken by the Government 
over the past several years. A beginning has been made in H1 of FY23, which recorded the 
highest share of Gross Fixed Capital Formation (GFCF) in GDP among all half-years since 
FY15.
263 Industry: Steady Recovery
Figure IX.1: Private Investment gathers momentum
 
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40
Pharma
Cement
Textiles
Auto
Chemicals
Capital goods
Mining
Construction
Electricity
Steel
? Lakh Crore
H1 FY23
H1 FY22
Source: Axis Bank Research, Capitaline
Box IX.1: Unfolding of Private Capital Investment Cycle
A view is fast emerging that the private sector is predisposed to increasing investment in the third 
decade of the new millennium. This has roots in the first decade of the new millennium when a credit 
boom financed rising levels of investment rates. Consequently, by the time the second decade began, 
the balance sheets of both the corporates and banks became stressed. As a result, corporates switched 
focus from investment to deleveraging while banks slowed credit disbursement in view of high Non-
Performing Assets (NPAs). Consequently, the investment rate declined, and the economy began to 
slow. Midway into the second decade, the problems were identified, and mitigation measures were 
initiated. For the banks, the Insolvency and Bankruptcy Code (IBC) was instituted to resolve their 
stressed assets while the equity base of public sector banks was strengthened. For the corporates, the 
Goods and Services Tax (GST) rollout improved their ease of doing business while the corporate tax 
rate was slashed to increase their profits/ investible reserves for financing investment. During the 
pandemic, the implementation of ECLGS lent additional support to the MSMEs. Maturing digital 
infrastructure and easy and cheap data access have further enriched the investment climate.
Figure A: Deleveraging by private non-financial sector 
 
40
60
80
100
120
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Per cent of GDP
Core debt of private non-financial sector
Source: Bank for International Settlements (BIS)
Note: Credit to the non-financial sector captures the borrowing activity of the private non-financial sector.