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RSTV: THE BIG PICTURE- NEW GOVERNMENT’S THRUST ON MANUFACTURING


RSTV: THE BIG PICTURE- NEW GOVERNMENT’S THRUST ON MANUFACTURING


Introduction:

Manufacturing in 2017 contributed only about 16% to India’s GDP, stagnating since economic reforms began in 1991. By contrast, in east and south-east Asia, the industry share has exceeded 30-40% while manufacturing is up 20-30%. India’s manufacturing share of GDP has not moved up at all, though between 2004 and 2012 manufacturing employment growth was reasonable. However, total manufacturing employment has fallen significantly between 2011 and 2016 by 10 million in just four years, especially in labour-intensive manufactures. This is the opposite of what was achieved in Japan, Korea, Taiwan and China. By contrast, in India the labour intensive manufacturing sectors like food processing, tobacco, textiles, apparel, leather, wood and furniture have seen a decline since 2012.

 

The manufacturing sector is part of the goods-producing industries super sector group. The Manufacturing sector comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. Establishments in the Manufacturing sector are often described as plants, factories, or mills and characteristically use power-driven machines and materials-handling equipment. However, establishments that transform materials or substances into new products by hand or in the worker’s home and those engaged in selling to the general public products made on the same premises from which they are sold, such as bakeries, candy stores, and custom tailors, may also be included in this sector. Manufacturing establishments may process materials or may contract with other establishments to process their materials for them. Both types of establishments are included in manufacturing.

India’s manufacturing sector has evolved through several phases – from the initial industrialisation and the license raj to liberalisation and the current phase of global competitiveness

 

Opportunities:

  • India offers the 3 ‘Ds’ for business to thrive— democracy, demography and demand.
  • Manufacturing sector holds good prospects for jobs with promising remuneratio
  • Various studies have estimated that every job created in manufacturing has a multiplier effect in creating 2–3 jobs in the services sector.
  • 65% of India’s population is below the age of 35 – giving us the edge of demographic dividend.
  • GST and improving public spending through infrastructure projects are favourable moves for the sector.
  • The labour-intensive manufacturing sector is the only ray of hope for India to absorb its huge labour force.
  • Robust domestic demand, a growing middle class, a young population and a high return on investment, makes India an attractive opportunity to manufacturers.
  • The cost of manpower is relatively low as compared to other countries.

 

Issues:

  • Banks are reluctant to offer credit for industrial activity.
  • Nature of the trade regime in India is still biased towards capital intensive manufacturing
  • Small Enterprises suffer from low productivity given that their small size prevents them from achieving economies of scale.
  • The jobs the small enterprises create are low-paying ones.
  • Industry’s inadequate expenditure on research and development (R&D). Currently, R&D spending amounts to around9% of GDP.
  • MSME sector facing tough competition from cheap imports from China and other countries with which India has free trade agreements.
  • Black money generation, not complying with tax laws, and the attendant corruption, has an adverse impact on making India a competitive manufacturing destination.

 

Challenges:

  • We are facing both investment and consumption crises.
  • Numerous regulatory roadblocks, unfavourable land and labour laws, inadequate transport, communication and energy infrastructure, among others.
  • India faces stiff competition from South-East Asian and other South Asian countries.
  • Global technological and geo-economic changes.
  • Impact of a strong rupee in recent times on Indian industry and the economy.
  • According to a FICCI report, India has 5.5 million people enrolled in vocational courses, while China has 90 million of them.

 

Government Initiatives:

  • Make in India initiative with the primary goal of making India a global manufacturing hub.
  • ‘Zero defect zero effect’ for MSMEs to deliver top quality products using clean technology.
  • ‘SKILL INDIA’ – a multi-skill development programme with a mission for job creation and entrepreneurship.
  • Labour reforms through a dedicated Shram Suvidha Portal, Random Inspection Scheme, Universal Account Number and Apprentice Protsahan Yojana.
  • Defence Procurement Policy (DPP) under which the priority will be given to the indigenously made defence products.
  • Technology Acquisition and Development Fund (TADF) under the National Manufacturing Policy (NMP) to facilitate acquisition of Clean, Green and Energy Efficient Technologies by MSMEs.
  • Pradhan Mantri MUDRA Yojana (PMMY) for providing loans to small-scale businesses.

 

Need of New Manufacturing Policy:

The contribution of manufacturing to GDP in 2017 was only about 16%, a stagnation since the economic reforms began in 1991.The contrast with the major Asian economies is significant. For example, Malaysia roughly tripled its share of manufacturing in GDP to 24%, while Thailand’s share increased from 13% to 33% (1960-2014).In India manufacturing has never been the leading sector in the economy other than during the Second and Third Plan periods

 

Way Forward:

  • Investor’s confidence must be improved.
  • Improving physical infrastructure from transport systems to the power sector is essential.
  • Importance should be given to electronic sector.
  • Improve access to finance for smaller enterprises.
  • Making firm entry and exit easier.
  • Inverted duty structure.
  • Enhancing the flexibility of labour regulations.
  • Low-cost manufacturing is important for India.
  • If India has to raise its share of manufacturing in GDP to around 25%, industry will have to significantly step up its R&D expenditure. This must be addressed by the new industrial policy.
  • The quantum of value addition has to be increased at all levels. Larger the value addition, greater the positive externalities.
  • FDI policy requires a review to ensure that it facilitates greater technology transfer, leverages strategic linkages and innovation.
  • Aim for higher job creation in the formal sector and performance linked tax incentives.
  • Attractive remuneration to motivate people to join the manufacturing sector.
  • Need to have a curriculum that focuses on soft-skills and value-based training that meets the demands of the industry.

 

Manufacturing sector is very important to provide jobs for ever increasing job force in India, bur today manufacturing sector in India is suffering from various issues. Though governments come up with various policies like Make In India, but it need to address core problems as discussed above, then only Manufacturing sector in India will grow at the required rate and will provide jobs for ever increasing job force. 

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