Listing rigidities in labour laws and distortions in indirect tax structure as major obstacles to faster growth, the pre-Budget Economic Survey on Wednesday asked the government to take suitable policy initiatives for attaining a challenging 10 per cent industrial growth.

"One of the most important challenges in Indian economic policy consists of devising strategies for obtaining industrial growth in excess of 10 per cent," the Survey presented in Parliament said.

Economic Survey 2003-2004: Complete Coverage

Regretting that industrial growth has been below 10 per cent for several years now, it said the outlook for Indian industry is bright if "five major constraints" -- labour law rigidities, distortions in indirect tax structure, high customs tariffs, reservation for small sector and frictions in creation and closure of firms are addressed.

The Survey said growth for the industrial sector in 2003-04 continued to be healthy. The index for industrial production grew by 6.9 per cent. Manufacturing, which has a weight of 80 per cent in IIP grew 7.1 per cent while mining grew by 5.1 per cent and electricity by five per cent.

At a two digit level classification as many as 12 out of the 17 industry groups have showed positive growth during 2003-04. In manufacturing, growth recovery has been sustained in the current year also for a number of sub-sectors.

Transport equipment and parts grew at 17 per cent, followed by paper and paper products, printing publishing and allied industries. Machinery and equipment other than transport equipment grew at 15 per cent, beverages, tobacco and related products grew 9.4 per cent and basic metals and alloy industries grew at 9.1 per cent.

Basic chemicals and chemical products -- except petroleum and coal -- grew 8.2 per cent in 2003-04, wood and wood products and fixtures grew 6.8 per cent.

Leather and fur products showed a negative growth of 4.3 per cent. Other sub-sectors in manufacturing that showed negative growth were jute and other vegetable fibre textiles (-4.2 per cent), textile products including apparel (-3.8 per cent) and cotton textiles (-3.3 per cent).

However, the key industries of the construction sector - steel and cement - showed a growth of 6.9 per cent and 6.1 per cent respectively in 2003-04.

The growth in capital goods sector was healthy with production increasing by 12.7 per cent in 2003-04.

Basic goods and intermediate goods industries grew 5.4 per cent and 6.2 per cent respectively. The consumer durables sector witnessed a growth of 11.6 per cent in 2003-04 as against the decline of 6.3 per cent in the previous year due to good monsoon and availability of retail finance.

The growth in consumer non-durables fell 5.7 per cent in 2003-04 as against growth of 12 per cent in 2002-03 as price wars cut into profit margins. Competition from local brands and inadequate coverage of IIP may be a part of the explanation for the poor performance of the sector, the Survey said.

On industrial investment, the Survey said after peaking at Rs 1,28,892 crore (Rs 1288.92 billion) in 1999 the proposed investment declined in next few years. However, investment intentions increased to Rs 57,806 crore (Rs 578.06 billion) during January-April 2004 compared to Rs 15,931 crore (Rs 159.31 billion) during the corresponding period of 2003.'

The foreign direct investment in India, which peaked at $4.74 billion in 2000-01, was at $3.73 billion in 2002-03 but declined to $3.57 billion in 2003-04. The amount of FDI approved also showed a declining trend from its peak of $9.89 billion in 2000-01.

The biggest FDI flows into India came from Mauritius (34.48 per cent) followed by US (16.56 per cent), Japan (7.63 per cent), Netherlands (7.04 per cent) and UK (6.88 per cent).