World Economy

2014, Watershed Year for India Manufacturing

2014, Watershed Year  for India Manufacturing2014, Watershed Year  for India Manufacturing

The year 2014 could go down in history as the turning point year for manufacturing. If, and only if, the sector’s share in India’s gross domestic product starts inching towards 25 percent over the next decade, from about 15 percent now, Business Today reported.  

In September, Prime Minister Narendra Modi launched the ‘Make in India’ campaign, exhorting global investors to manufacture in India. The campaign hinged on three pillars – improving the ease of doing business by de-licensing and de-regulation, enabling infrastructure such as industrial corridors, and opening up foreign direct investment (FDI) in sectors such as defense, construction and railways.

There is some progress in the ease of doing business – the industry has been laid low due to environment delays, land acquisition problems and too many agencies to seek permissions from.

A new cement plant can take 43 clearances from different government organizations. While a lot is yet to be done, the government has made a start. The process of applying for Industrial License and Industrial Entrepreneur Memorandum, for instance, is now online, which is expected to ease the filing of applications and payments.

In labor compliance, the government is streamlining a major irritant – how factory inspectors inspect and report. A new labor inspection scheme prefers a “risk-based” algorithm to pick manufacturing units for inspection, rather than human discretion. The inspector also has to upload his report within 72 hours of an inspection.

The Modi government has been seeking to step up the pace of reforms to revive the stuttering economy after criticism from business it was not moving swiftly enough.

India has been stuck in the longest spell of below-five-percent growth in a quarter-century, hit by high interest rates, an investment slowdown and flagging consumer confidence.

Economic growth in the last financial year to March 2014 was 4.7 percent after falling to 4.5 percent the previous year, half the boom rates rate of a few years ago.

This year, the government hopes growth will accelerate to 5.5 percent and cross six percent next year.

  Growth and Sustainability

Through time, manufacturing industries have helped nations attain high economic growth and sustainability. Industrial nations have participated and benefited from the rapid spread of globalization — a key driver of economic growth, prosperity and rising standard of living.

The UK, Germany, North America, Taiwan, South Korea, Japan and China have all, at some point of time, emerged as global manufacturing leaders, which put them as prominent economies on the world map.

Dominance in manufacturing, however, has navigated geographies as developed nations have struggled to keep manufacturing intact due to rising costs and lack of competition, creating opportunity for other economies to emerge.

In today’s global scenario, manufacturing is an essential step not only towards self-reliance, but a road to national development and economic empowerment. India, in its road to development, has moved from being primarily an agrarian economy to a tertiary service dominated one.

Despite having the necessary resources, India missed out on developing a strong manufacturing setup — the sector contributed 15% of the gross domestic product (GDP) in financial year (FY) 2014. This is not substantial, especially when compared with Asian peers such as China and South Korea (31% each), Thailand (30%), Malaysia (25%) and Indonesia (24%).

India’s manufacturing sector contribution to GDP peaked at 16.6% in FY97, and has been a static contributor at around similar levels since the start of the liberalization era in 1991. A manufacturing boost will help India address one of its biggest problems — a large work force with unmet employment needs.

Historically, India has generated seven million jobs a year vis-a-vis 23 million people that are eligible to join the work force each year now. Secondary sectors (industries including manufacturing) in FY12 employed 25% of India’s work force against its 20% contribution to GDP, while tertiary sectors (such as services) employed just 28% of the work force as against its 66% contribution to GDP.

Manufacturing will also help reduce import dependence, increase export revenues, sustain the services demand and will make GDP growth sustainable.