Future GDP growth to come from manufacturing : Prabhu 

Future GDP growth to come from manufacturing : Prabhu 

Context:

Commerce and industry minister Suresh Prabhu recently said that services industry had grown at the expense of manufacturing and agriculture and his government would look at increasing the share of manufacturing to 25 per cent in an expanded GDP.

Problems of India’s manufacturing sector:

Some of the issues pertaining to manufacturing are :-

1. Cheap imports: After Globalisation reforms, Indian market is flooded with foreign products especially Chinese. This hinders growth of domestic firms.
2. Labour laws: India has more labour laws combining centre and states. This leads to harassment and undue interference in industrial activity by bureaucracy.
3. Lack of skilled manpower: India severely lacks skilled professionals .Only 2.5% of India have received skill training, compared to Japan (75%) and Germany (80%).
4. Lack of capital: High Non Performing Assets’ of banks have reduced flow of money to industrial credit.
5. Lack of technology: Indian firm spend than 10% in Research and Development.
6. Infrastructural bottlenecks: poor road and rail connectivity. Erratic power supply. all this adds to high logistics cost decreasing competitiveness of Indian goods

India’s position in ease of doing index:

• For the first time ever, India has jumped 30 positions to become the top 100th country in terms of  ease of doing business rankings this year. This was announced by the World Bank Group’s latest Doing Business 2018: Reforming to Create Jobs report in Delhi on 31, October 2017.
• Last year, India had moved just one point, from 131st position among 190 countries to 130th position.
• India has embarked on a fast-paced reform path and has acknowledged a number of substantial improvements.

India’s potential  :

• India has a massive workforce, an emerging supply base, and access to natural resources needed in production
• The country could become a viable manufacturing alternative to China in industries ranging from apparel to auto components and might even dominate some skill-intensive manufacturing sectors
• If India’s manufacturing sector realized its full potential, it could generate 25 to 30 percent of GDP by 2025, thus propelling the country into the manufacturing big leagues, along with China, Germany, Japan, and the United States.

Concerns / Challenges  :

• Although the country’s manufacturing exports are growing its manufacturing sector generates just 16 percent of India’s GDP—much less than the 55 percent from services
• a majority of India’s largest manufacturers don’t return their cost of capital a factor that dampens investment in the sector
• Indian manufacturers lag behind their global peers because of lower productivity
• Challenges associated with land acquisition, rigidity in labour laws, and poorly skilled manpower.

Bottlenecks:

1. Use of primitive technology or under utilization of technology.
2. Poor infrastructure.
3. Over staffed operations.
4.  Expensive financing and bureaucracy.

• In the era of globalisation, competing in international markets has become a challenge for the country’s private as well as state-owned firms.
• Challenge posed by the growing Chinese clout by selling products at globally competitive prices.
• Purchasing Managers’ Index (PMI) — a gauge of manufacturing performance — fell to 52.1 in September from 52.6 in August, indicating that growth in the sector lost some momentum.

National Manufacturing Policy

• The Planning Commission has recently released the draft of the country’s first ever National Manufacturing Policy. The objective of the National Manufacturing Policy is to boost the country’s share of industrial production, employment; development of world-class infrastructure and investments in India’s manufacturing space.
• The draft policy envisages establishment of National Investment and Manufacturing Zones (NIMZ) equipped with world-class infrastructure that would be autonomous and self-regulated developed in partnership with the private sector.
• The Cabinet approved the revised proposal of the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry to put in place a National Manufacturing Policy.
• The major objectives of the National Manufacturing Policy are to increase the sectoral share of manufacturing in GOP to at least 25% by 2022; to increase the rate of job creation so as to create 100 million additional jobs by 2022; and to enhance global competitiveness, domestic value addition, technological depth and environmental sustainability of growth.
• The policy envisages specific interventions broadly in the areas of industrial infrastructure development; improvement of the business environment through rationalization and simplification of business regulations; development of appropriate technologies especially green technologies for sustainable development and skill development of the younger population.

Way ahead:

• There is need to get new manufacturing ideas into India and identify 6-7 greenfield areas to focus on that India can leapfrog globally.
• Skill India, Make in India, Digital India will help in this regard. SIDBI bank, MUDRA bank etc. need to step up their contributions to extend extra credit to spur manufacturing sector, and government should improve labor laws, and implement insolvency and bankruptcy code properly.
• Indian manufacturing sector need to be part of the global supply chain and benefit from these linkages.
• There should be a mid-term review of the foreign trade policy.
• The government plans to invite pension funds, sovereign funds and investors to India for round-table talks.