(General Studies III – Economy Section – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment. Inclusive Growth and issues arising from it.)
- The manufacturing sector contributes 17% of India’s GDP and employs over 27.3 million workers, playing a significant role in the country’s economy.
- However, several challenges and impediments hindered the sustained growth of the manufacturing sector and large-scale employment generation.
Status of Manufacturing in India –
- Contribution to GDP stands at 17%.
- Employment Generation: 27.3 million
- Manufacturing Exports: USD 447.46 billion in FY23
- Sectorial Advantage: Key manufacturing sectors in India, such as chemicals, pharmaceuticals, automotive, electronics, industrial machinery, and textiles, have experienced significant growth in recent years.
- Rise of MSME: MSMEs currently contribute approximately 30% to GDP, playing a crucial role in driving economic growth and contributing nearly 45% of India’s total exports.
Challenges faced by Indian Manufacturing Sector in the Past –
- Regulatory Hurdles and License-Permit Raj: led to the discouraging entrepreneurial initiatives and dampening the private sector’s growth.
- Monopolistic Practices: Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 suppressed large-scale production and hindered industrial growth.
- Rehabilitation and Resettlement Challenges: The implementation of the Rehabilitation and Resettlement Policy for major projects faced difficulties, making land acquisition more complex in a democratic setting.
- Infrastructure Bottlenecks: Challenges in power, roads, telecom, and other infrastructure acted as limitations for industrial growth.
- Rigid Labour Laws: Rigid labour laws deterred investment, hindered competition, and negatively impacted the growth of the labour-intensive.
- Favourable Terms for MSMEs and Moral Hazard: Reservation for Micro, Small, and Medium Enterprises (MSMEs) with favourable terms led to a moral hazard, of not scaling up to large industries.
Present Day Challenges of Manufacturing in India –
- Outdated technology and inadequate infrastructure hinders the ability of Indian manufacturers to compete globally and meet international quality standards.
- Shortage of Skilled Workforce: As per World Bank, only 24% of India’s workforce possesses the skills required for complex manufacturing jobs.
- High Input Cost: As per RBI (2022) states that logistics costs in India are 14% higher compared to the global average which impacts the overall competitiveness of Indian manufacturing industry.
- Complex Regulatory Environment: It acts as deterrent for businesses looking to set up manufacturing units in India.
- Competition from China and Import Dependence: In 2023-24, China accounted for almost 42% of India’s textiles and clothing imports, 40% of machinery, and 38.4% of electronics imports.
- Access to Credit for MSME: The Micro, Small and Medium-sized enterprises (MSME) sector appears to have less favourable access to credit and higher costs for working capital.
Government Initiatives for Growth of the Industrial Sector
- Production-Linked Incentive (PLI): To scale up domestic manufacturing capability.
- PM Gati Shakti- National Master Plan: Multimodal connectivity infrastructure project.
- Bharatmala Project: To Improve connectivity in North East India
- Start-up India: To catalyze Startup culture in India
- Make in India 2.0: To transform India into a global design and manufacturing hub.
- Atmanirbhar Bharat Campaign: To cut down import dependence.
Reforms needed to make India Manufacturing Hub –
- Labour Reforms: Easy higher and fire of workforce and ensuring Minimum Living Wage for workers.
- Empowering States: Directing and helping States on policy formulation related to manufacturing and promoting competition.
- Land Titling Act: As per The NITI AAYOG land accusation is the biggest hurdle in India. Government must pass thus Act.
- Single window Clearance: streamlining regulations to promote ease of doing business in India single window clearance is must.
- Fostering Innovation: Supporting research and development in the manufacturing sector, and promoting the adoption of new technologies and processes, could help drive innovation and boost productivity.
- Encouraging Skill Development: Providing more opportunities for training and skill development could help address the shortage of skilled labour in the manufacturing sector.
India’s manufacturing sector is in constant need of reforms to make the manufacturing sector globally competitive. The government needs to focus on the demand side of the economy by taking measures to raise the income of individuals which would lead to a cycle of production, consumption, and economic growth of the country.
