Make machines in India: Why economists arguing against policy emphasis on manufacturing are completely wrong

Source: The post is based on an article “Make machines in India: Why economists arguing against policy emphasis on manufacturing are completely wrong” published in The Times of India on 8^th October 2022.

Syllabus: GS 3 – Industries and industrial policies

Relevance: manufacturing sector and need to look into it

News: Some experts today argue that India should encourage service sectors and the policies for manufacturing sectors are criticized.

One of the reasons for this argument is that the service sector is big and it contributes about 55% of our GDP.

However, size alone is not important as Simon Kuznets (the father of GDP) said that GDP is a measure of wealth not of welfare.

What is the current situation of service sector in India?

Service sectors in India include low-to-unskilled labour force and none of them are skilled enough to be exported to other countries.

80% of jobs in this category are in construction, transport, retail and beauty.

Even Indian doctors are not good at providing required medical services in India as they lack proper training and modern technologies.

How can our service sector become world class and ready for export?

International experience tells us that when the manufacturing sector grows and reaches a certain saturation level then the qualities and skills begin to move towards the service sector.

This has happened in the West, in Europe and the US, and also in the East, in South Korea and Japan.

Therefore, it is necessary to strengthen the manufacturing sector because product innovations and differentiation first take place in this sector.

What is the current situation of manufacturing sector in India?

Currently India spends 0.6% of its GDP on R&D in the manufacturing sector which is one of the lowest in the world.

Further, only about 7% of the 2. 5 million engineers in India can perform core engineering tasks.

Land acquisition is one of the problems for setting up manufacturing plants in India. However, the data shows that only 8% of stalled projects are because of land acquisitions problems.

How can the manufacturing sector help in the growth of the service sector?

India’s IT sector only employs 3 million people while in the US there are about 12 million people working in the IT sector. South Korea’s IT sector has moved ahead because manufacturing and R&D.

Therefore, the growth in the manufacturing sector will create an advanced service sector.

Moreover, a mature service sector is hugely dependent on the manufacturing sector and not independent of it. The service sector grows only with a strong manufacturing sector.

Studies in the US show that the largest consumer of services is the manufacturing sector and high-end manufacturing requires the service sector to be attached with it for the best results.

Therefore, India should focus on manufacturing sector to achieve best results from the service sector.