Sectoral growth.
industrial sector has shown slowdown in the GDP contribution since 1995. The industry was growing at around 10% whereas in 1996-97 the industry growth was noted to be 2.4%. The reason for this industrial recession came out to be credit crunch and high government borrowings. The expenditure of the government increased considerably because of which government borrowed money, to keep inflation in control RBI kept high rates which lead to less FII’s inflows and later RBI decided to borrow the duty of paying back to foreign investment which further worsened the situation. All this lead to industrial sector recession. When the rate of RBI decreased it came out that credit crunch was not the only reason for the recession there was also low demand. As the percentage of goods and services increased there was high inventory getting pulled up, infrastructure was also amongst the main issues. Not only the industrial sector , but the agricultural sector contribution to GDP decreased which was becoming a big concern for India.
By 2003 situation improved this happened because Indian firms acted smartly by adopting financial engineering to reduce interest costs. Despite a high fiscal deficit infrastructure improved considerably. The golden quadrilateral project and privatization of ports helped to reduce the demand problems. With Indian firms going global they made impressive strides in areas like FMCGs, autoinclarry, pharmaceuticals, engineering, farm equipment and food processing.
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Added to this, the opportunities arising from information technology, business process out sourcing, biotechnology and bioinformatics have helped Indian exports grow significantly and also keep the current account deficit at a reasonably sustainable value.
Now Indian GDP main contribution is the services sector and there is also increase in agricultural contribution to GDP. Focus has been shifted from being a country whose most of the contribution has been from agriculture to services sector.
