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