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On June 20, Prime Minister Modi, in a 165-minute virtual interaction with Ministers asked them to put the economy on a growth trajectory. For this purpose, he asked the Ministers for ideas which can transform India into a global manufacturing hub. In the virtual interaction, the discussion was mainly about China and the manufacturing challenges faced by India. Earlier, Prime Minister Modi gave a mantra ‘vocal for local’ during his address to the nation on May 12, 2020. The idea was to promote local brands and goods. He further stated that the brands which are global today were once local. More recently, the clamour has become louder to make India a global manufacturing hub, especially considering the China situation. In the 1980s, China began as a producer of low-end products and in 2010; it became the largest manufacturer in the world, overtaking the US in all the sectors– drugs to electronics. In 2018, as per UN data, China accounts for 28% of the global manufacturing output.

Issues of manufacturing sector amid Lockdown:

  • India’s manufacturing activity contracted at its sharpest pace on record in April as a lockdown to combat the rapid spread of the coronavirus led to a slump in demand and massive supply chain disruptions
  • Asia’s third largest economy is taking a huge hit from the ongoing nationwide lockdown, which started on March 25, and its gross domestic product is expected to shrink for the first time since the mid-1990s this quarter
  • Record contractions in output, new orders and employment pointed to a severe deterioration in demand conditions.
  • With new orders and output shrinking at the steepest pace since at least early 2005 factories cut jobs at the fastest rate in the survey’s history, signaling a high chance of recession.
  • A record slump in both input and output prices, suggesting a sharp fall in overall inflation which has held above the Reserve Bank of India’s medium-term target of 4% for six months, failed to stoke demand
  • Enterprises suffer from low productivity given that their small size and lockdown prevents them from achieving economies of scale.
  • The jobs the small enterprises create are low-paying ones.
  • 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.

Opportunities For India:

  • There are, however, opportunities that appears to be emerging.
  • While there is hope for a quick recovery in India, we have to make concerted efforts to realise this including an integrated multi-pronged approach through public policy support, private sector participation and citizens’ support.
  • This presents a huge opportunity for India as many Companies plan to shift out of China. We need to prepare the ground forthwith to welcome such investment into India. We need to try and make life easy for investors.

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.

Aatmanirbhar Bharat Abhiyan: the right impetus:

  • India could be their destination of choice, provided we offer a conducive environment.
  • A conducive business climate with better infrastructure and logistics, simplified land and labour laws and single window clearances can enable India to develop a robust manufacturing ecosystem.
  • This will help attract foreign capital, latest technology, create jobs and boost our exports.
  • We must also focus on Skill and Scale to be both quality and cost competitive and serve a global customer base.
  • Huge scope exists in sectors such as pharma, electronics, automobiles and defence machinery, not only to be self-reliant but also capture a decent slice of the global supply chain.

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.