India’s Manufacturing Sector: Today’s Talk on Editorials
Significance: Nikkei India Manufacturing Purchasing Managers’ Index (PMI) for November recorded a total of 52.6 which is the highest reading since October 2016.It shows that the state of manufacturing sector is in expansionary territory.
Statistics of India’s manufacturing sector: The share of manufacturing sector in GDP has consistently increased from 14.8 in 2010-11 to 17.2 by 2015-16. It is way below the desired share of 25% in GDP.
Government Initiatives in manufacturing sector:
- Policy formulation: to make manufacturing sector more effective and productive in nature. Examples include National Capital Goods Policy to increase production of capital goods from Rs.2,30,000 crore in 2014-15 to Rs.7,50,000 crore in 2025 and raising direct and indirect employment from the current 8.4 million to 30 million, National Manufacturing Policy to increase sectoral share of manufacturing in GOP to at least 25% by 2022.
- Schemes: Govt. initiates several schemes to help the manufacturers and business persons. For example, TREAD scheme to promote women entrepreneurs, Zero defect zero effect scheme to produce products with no defects and with environment friendly techniques.
- Flagship programmes: to comprehensively address the issues in manufacturing sector and to transform India into a global design and manufacturing hub. For example : Make in India programme.
- Fund allocations: are given as incentives to the manufacturers and as loans with minimum interest rates. For example , PM Mudra Yojana as integrated financial and support services for a comprehensive economic and social development, Technology Aquisition and Development Fund to promote textiles sector in India
- Easing regulatory regime: to increase foreign investment and enable technology transfer. Eg: Efforts of Indian government to achieve a better rank in ease of doing business can be seen in sync with it. Indian govt. has reduced time for starting business, made access to electricity easier, enforcing contracts more efficient as well.
Problems in manufacturing sector:
- Low skill development in India is a major issue. Only about 2% of India’s labour force have formal access to skilled training compared to 55% in China. Also, archaic and complex labour laws continue to informalise the economy and lack of innovation and low technological adaptations also hinder the productivity.
- Logistics cost is very high in India. Infact, India can save up to $50 billion if logistics costs are brought down from 14 per cent to nine per cent of country’s gross domestic product (GDP) thereby making domestic goods more competitive in global markets. The energy infrastructure in India remains below world average. India is placed at 87th on a global energy architecture performance index.
- Regulatory cholestrol is forcing the industry to hire contract workers and it hampers job creation in India. The lack of easy exit for industries hamper the foreign investments in India. Also, workforce participation rate of women is significantly lower than that for males in both rural and urban areas.
- Credit availability remains subdued because of the Twin Balance Sheet problem and the Non Performing Assets. Thus, the industries look at favourable alternatives. Intense competition from countries like Vietnam, Bangladesh, Cambodia etc. hamper apparel and leather industry in India.
- Environmental regulations and protests are more in India compared to other manufacturing countries. This results in lesser number of working days for the companies. Also, bureaucratic red-tapism and uncertainty in flagship programmes reduce the total output of manufacturing sector. Recently, Indian government rejected the newly manufactured GE diesel coaches made under the banner of Make in India for preference to electric coaches. It is detrimental to India’s ambitions of being a manufacturing power.
Conclusion: To raise the share of manufacturing sector to 25% of GDP, India has to significantly increase the R&D expenditure.FDI policies also have to be liberalised to increase the production in India. Investors’ confidence must be improved by creating competitive environment and it needs conducive environment with low tax rates, absence of bribery, corruption and neatly defined laws to end the harassment from the regulators.