Open Forum
New Delhi, 2 November
2022
Manufacturing Sector
WILL PLANS HELP GROWTH?
By Dhurjati Mukherjee
Three decades of reforms notwithstanding, manufacturing in
the country as a proportion of GDP has not really picked up. Today there is an
ongoing debate going whether the focus of attention should be on manufacturing
or should the emphasis be on services. Though services play an important role
in India’s GDP, it needs to be stated that the volume alone does not cater to
overall economic development. For a country like India, there can be no second
thoughts about the fact that manufacturing holds the key for economic
expansion.
The Central government way back in November 2011 decided to
initiate the National Manufacturing Policy (NMP)to bring about a quantitative
and qualitative change with the main objectives of increasing manufacturing
sector growth to 12-14 percent over the medium term to make it the engine of
growth for the economy. The two to four percent differential over the
medium-term growth rate of the overall economy was expected to enable
manufacturing to contribute at least 25 percent of the GDP by 2022. But this
has unfortunately not happened and contribution of manufacturing is not even 18
percent of the GDP.
Employment creation has been sluggish and economists have
been calling this ‘jobless growth’. Through the recent recruitment drive in the
Rozgar Mela, (Employment Fair) aimed at inducting 10 lakh personnel as
promised, 75,000-odd new appointees were inducted in the first batch this
October, it is not very encouraging. More so, as it is necessary to pay equal
emphasis on manufacturing, if not more. Policy attention needs to be on sectors
such as textiles which have the potential to generate employment.
With the aim to boost up manufacturing and reach global
standards, this September Prime Minister Narendra Modi launched a National Logistics
Policy (NPL) to streamline and bring all digital services pertaining to
transportation sector into a single portal,‘freeing exporters from a host of
very long and cumbersome measures’. The procedure would entail using ULIP i.e.
a Unified Logistics Interface Platform, which is expected to improve
coordination across ministries with transparency and accuracy. Plus, it would provide
a framework for facilitating more efficient trade of products by standardising
traffic management systems along with modern transportation infrastructure for
all kinds of transportation, including roads, trains, waterways, etc.
Experience has shown that only if the manufacturing sector
takes off and reaches a certain level then only do services get a boost. Therefore,
strengthening of the manufacturing base is essential and that is why the
government must do more. At the same time, it needs to be pointed out that
spending just 0.6 percent of the GDP on R&D does not help in gearing up
manufacturing, which could eventually lead to increased exports.
In recent years,the Ministry of Commerce & Industry initiated
Production-Linked Incentive Scheme to make India a manufacturing hub and to compensate
for poor infrastructure, labour laws, land acquisition laws etc. The total
financial estimated outlay combined for the 14 PLI programmes rolled out is Rs
3.46 lakh crore, which at first glance may not be a small amount, but is
expected to be spent over five years, which comes to 1.5 percent of the Union
Budget and 0.2 percent of GDP.
Questions are being asked what will happen to manufacturers
after the PLI scheme ceases in five years, as feared by some economists.
Strategically important products for India such as semiconductors and
pharmaceuticals are vital in this context and PLI has greatly helped business
houses to come forward. But questions of efficiency, technological input and
sincerity of business houses are crucial for manufacturing to grow and stabilise
in the coming years.
Propelled by Ministry of Electronics and Information
Technology’s Phased Manufacturing Programme (PMP) and PLI, in the mobile manufacturing
sector, exports reached Rs 27,000 crore in 2019-20 and within the first year of
the PLI scheme, saw a 66 percent increase to Rs 45,000 crore. Mobile production
has picked up significantly and compared to 2014-15, 14 times increase has
taken place, reaching Rs 275,000 crore of which a 28 percent was recorded
within the first year of the PLI. Encouraging indeed.
Some experts have,however, compared it to the manufacturing
success of Vietnam, but it needs to be pointed out that it built its
competitiveness over the past 15 years. Similarly for China, the period
extended for around three decades. But India’s initiative started rather lateand
perhaps a big portion of the blame would fall on previous Congress governments
for not giving the sector the priority it deserved. The opportunities in the
manufacturing sector should not and cannot be ignoredand the present regime realising
it is seeking to create a conducive environment for its growth.
Undeniably, the sector has a great potential and
attractiveness given a large market base, high domestic demand, increasing
middle class and high returns. Now with emphasis being laid on skilled
training, there are expectations that the manufacturing sector could dobetter. Another
important consideration is the role of job creation in this sector. Studies
have shown that every job created in the manufacturing sector has a multiplier
effect in creating two to three jobs in the service sector.
At the same time, an aspect which needs attention is the availability
of finance for small entrepreneurs. While in recent years, a number of schemes have
been made accessible for modernisation and/or expansion of their units,
expectations are yet to be met. This apart, while appropriate technology would help
improve product quality, most of the District Industries Centres (DICs) are not
effective to help these entrepreneurs with the right technology at
cost-effective prices. India spends a mere 9 percent of GDP on research and
development, considerably small amount, when compared with other developed or
even emerging nations. This prevents the sector from evolving, innovating and
growing on expected lines.
Arguably, the MSMEs need more encouragement in the
manufacturing sector. In India, these account for 8 percent of the GDP, 45
percent of manufacturing output and 40 percent of exports. Further, the
labour-capital ratio is much higher in MSMEs than in large industries. Plus, this
sector is facing tough competition from cheap imports from China and other
countries that have a free trade agreement with India. It remains to be seen whether
this sector, among others, can grow with availability of right technology and
incentives in the new logistics policy to give the requisite push to achieving
the larger initiative of “Make In India.” ---INFA
(Copyright, India News & Feature
Alliance)
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