India Need to Improve its Manufacturing Sector

Source: The post India need to improve its manufacturing sector has been created, based on the article “The shape of manufacturing 3.0 for Modi 3.0” published in “The Hindu” on 10th July 2024

UPSC Syllabus Topic: GS Paper3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context: The article discusses the need for India to enhance its manufacturing sector to create jobs and reduce trade deficits. It highlights the challenges at the state level and suggests the U.S. could help improve business conditions in Indian states to support this growth.

For detailed information on Need to Revive Manufacturing Sector in India read this article here

What is the Current Status of India’s Manufacturing Sector?

1. Current GDP Share: India’s manufacturing sector contributes only 13% to the GDP as of 2022, down from an earlier aim of increasing it to 25% by 2025.
2. Comparison with Other Countries: This percentage is lower compared to manufacturing giants like China (28%), Vietnam (25%), and even smaller economies like Malaysia (23%) and Bangladesh (22%).

Why Does India Need to Improve its Manufacturing Sector?

1. Employment Creation: Half of the workforce is stuck in low-productivity agriculture. Enhancing manufacturing could provide much-needed urban jobs as workers transition from rural areas.
2. Reduce Trade Deficit: India has a substantial goods trade deficit of $250 billion, with high imports of manufactured goods like electronics. Boosting domestic manufacturing could reduce this deficit.
3. National Security: Enhancing India’s manufacturing sector is crucial for national security as it reduces reliance on imports for critical supplies. This self-sufficiency is especially important given the rising tensions with neighboring countries like China. A robust manufacturing base helps India maintain stability and readiness in the region.

What Are the Challenges in Improve India’s Manufacturing Sector?

1. State-Level Regulation: Critical factors like electricity, water, labor regulations, and land acquisition are controlled by state governments, not centrally, which can lead to inconsistencies and inefficiencies.
2. Ineffective State Policies: The “Business Reforms Action Plan” aimed to improve state business environments has not been updated since the COVID-19 pandemic and relied on often unreliable self-reporting by states.
3. Focus on Capital-Intensive Industries: There’s an overemphasis on sectors like semiconductors and robotics, which may not create as many jobs as sectors like textiles and furniture.

How Can Manufacturing Benefit India and the U.S.?

1. Regional Security: A robust manufacturing base supports India’s role in regional security, which is crucial given the strategic challenges posed by China.
2. Supply Chain Resilience: Manufacturing in India enhances the viability of U.S. supply chains, as some manufacturing shifts away from China.

Question for practice:

Examine how enhancing India’s manufacturing sector could contribute to reducing the country’s trade deficit and improving national security.