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Industry accounts for about 29 per cent of GDP in the Indian economy (29.02% GVA at current prices in 2016-17 and 31.12% at 2011-12 prices). This is smaller than the average share of 35 per cent for developing countries as a whole.
Indian industry experienced slow and poor productivity performance during the period from 1950 to 1980. The policy regime had strong preference for the public sector, extensive controls over private investment, a highly protective trade policy, and inflexible labour laws (especially after the mid-1970s). Promotion of the small-scale sector and regional balance were additional objectives of the industrial policy regime. Up to the mid-1960s, policy instruments were aimed at purposive diversification within the industrial sector and increased public investment. The period after the mid-1960s witnessed a marked deepening of the import-substitution regime and strengthening of domestic regulatory structures. This period witnessed a significant deceleration in growth to 4 per cent per annum compared to 6.1 per cent in the period from 1950 to 1965.
The decade of the 1980s witnessed some experimentation with domestic deregulation that yielded handsome dividends in productivity gains and acceleration in growth to 7 percent per annum. In 1991, in response to a major balance-of-payments crisis, India made a radical shift away from its long-standing policy of inward orientation, and the subsequent reforms have moved the policy regime significantly towards market orientation, deregulation, and liberalization. Indian industry has responded to the increased competition – domestic as well as foreign – with significant restructuring although the constraints arising from poor infrastructure, largely unreformed public sector, slowly reforming banking sector, inflexible labour laws, and other barriers to exit stand in the way of faster adjustment to the new and emerging policy regime which is inspired by market orientation.