Strengthening the manufacturing sector

Strengthening the manufacturing sector

Consider the stakes. India, the second largest populous country and the fourth largest economy that accounts for 4.6 percent of the world's gross domestic product, had manufacturing registering only 16 per cent share of its GDP since the 1980s.

Nothing could be more expedient than a national manufacturing policy (NMP) – approved recently by the Union cabinet – that targets hiking up the share to 25 per cent by 2022, hoping to build national investment and manufacturing zones (NIMZ) with state-of-the-art facilities. The bottomline would surely be the generation of 100 million jobs over 10 years. India is now one of the top 10 industrial nations of the world with a 1.5 per cent share in manufacturing value added (MVA), according to the International Yearbook of Industrial Statistics 2011 report.

Ironically, in 2007, India’s exports were only 1 per cent of the world’s total despite its low labour costs and large population. With the US, Japan and China occupying the top three slots, India ranks 12th (according to Global Insight and the ‘Financial Times’) in the pecking order of manufacturing nations. That manufacturing – rightly considered as the main engine for economic growth and creation of wealth – suffered attention deficit for so long could both be an outcome of misplaced focus and systemic failure. It is more evident from that we lack reliable data on India's formal or "organised" sectors, and even less about the informal economic sectors in which most Indians work, making economic planning and analysis by both government and industry fuzzy.

Wooing investors
The ambitious $90 billion Delhi-Mumbai industrial corridor (DMIC) that envisages setting up seven new investment regions across six states, Maharashtra, Madhya Pradesh, Gujarat, Rajasthan, Haryana, and Uttar Pradesh, must try to steer clear of the old demons that haunted the entire debate on special economic zones (SEZs) – issues of land acquisition, industrial relations, environmental clearances.

For India, to become a solid manufacturing hub we need land for industrial development. We need good quality infrastructure to woo investors from private sectors. The problem is both the SEZs and NIMZs are meant to be propped up as pampered areas of nurtured export and industrial expansion, leaving a vast tract in a pool of backwardness which can breed great social conflict.

Compared to the voluminous manufactured exports from China – the pinch of which is felt from toy market to the electronic goods market – India still lags way behind. It is difficult to replicate the Chinese model of economic growth in India simply because systems of governance vary in two countries. It is open to debate however, whether India runs the risk of faltering on policy implementation perhaps because of democracy or despite it.

China’s manufacturing success – six times larger than India’s – was backed by a rapid lurch, among other things, towards capital-intensive and high-technology industries – rendering its goods cheaper and most competitive globally.

We have draconian laws, wobbly infrastructure facilities, land acquisition controversies and regulatory hurdles standing in the way. A cynical view is that in India, a manufacturing unit has to comply with as many as 70 laws and file something like 100 returns every year. Foot-dragging over much-hyped legislative actions such as the introduction of a Direct Tax Code and a pan-India Goods and Services Tax is an instance to put off the investors. But India can hope to be leveraged in cheaper workforce advantage by its average age – 25 years – of its population compared to China’s average age of 35 years, due to China’s one-child policy in place, which put in terms of competitive pricing can help India edge past China.

But when we talk about workforce, we must bear in mind that 75 per cent of India's working population is educated only to middle school or below which boils down to the fact that approximately 600 million people are not even equipped to benefit from the opportunities in the flourishing knowledge sector.

The reason is that the growth of service industries in India lies in low-volume areas, and to a major extent in capital and skill-intensive manufacturing, employment in which is the preserve of a university or institution graduate. The manufacturing sector, which accounts for 80 per cent of India’s industrial output, has also the highest weightage in the Index of Industrial Production (IIP).

But the elitist bias of the manufacturing sector – emphasis on IT education in preference to tertiary education and low percentage of people aged between 15 and 35 years gaining access to vocational education and training (VET) programmes – would leave out a vast labour pool outside the loop of employment for the manufacturing sector.

In view of the sharp fall of India’s industrial output, perhaps the job at hand is to tide over the government’s slothful approach towards economic reforms – seized as it is with a kind of policy paralysis and ridden by scandals – that might derail the Indian growth story. A dreamy-eyed policy, otherwise, may well turn out to be a pipe dream.