Growth in Manufacturing Sector

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TOPIC: General Studies 3

• Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
• Inclusive growth and issues arising from it.

Key Points:

• Manufacturing sector is estimated to have grown at a CAGR of 4.34 per cent between FY12 and FY18.
• The Wholesale Price Index, in respect of manufactured goods grew 4.4 per cent 2016-17.
• Indian manufacturing sector’s Gross Value Added at basic prices based at current prices is expected at US$ 388.01 billion in 2017-18E.
• As per Labour Bureau’s Quarterly Report on Employment Scenario, manufacturing sector added an estimated 89,000 jobs in the second quarter of 2017-18.

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr Narendra Modi, had launched the ‘Make in India’ program –

• India is expected to become the fifth largest manufacturing country in the world by the end of year 2020
• Aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent
• Create 100 million new jobs by 2022

Factors that helped drive growth include

• Upgradation of electrical infrastructure
• Expansion of companies’ product portfolio
• Distribution expansion
• Increased share of organised players
• A stable currency regime
• Growth of exports

The top concerns were

• Competition from imports
• Lack of quick decision making on policies
• Slow pace of key reforms

Government Initiatives

• In the process of coming up with a new industrial policy which envisions development of a globally competitive Indian industry.
• In Union Budget 2018-19, the Government of India reduced the income tax rate to 25 per cent for all companies having a turnover of up to Rs 250 crore (US$ 38.75 million).
• Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Government of India increased export incentives available to labour intensive MSME sectors by 2 per cent.
• The Government of India has launched a phased manufacturing programme (PMP) aimed at adding more smartphone components under the Make in India initiative thereby giving a push to the domestic manufacturing of mobile handsets.
• The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.
• The Ministry of Defence, Government of India, approved the “Strategic Partnership” model which will enable private companies to tie up with foreign players for manufacturing submarines, fighter jets, helicopters and armoured vehicles.
• The Union Cabinet has approved the Modified Special Incentive Package Scheme (M-SIPS) in which, proposals will be accepted till December 2018 or up to an incentive commitment limit of Rs 10,000 crore (US$ 1.5 billion).

The Way Ahead:

The Make in India programme has gradually commenced its upward journey in defence, railways, ports, airports, urban infrastructure and affordable housing sectors. The preparedness of Indian manufacturing sector to cater to the growing needs of these critical sectors would determine the success, efficiency and competitiveness of this sector as the industrial backbone of the country.

• • A close dialogue and partnership between government and the private sector, both domestic and foreign, is critical.
  • Idea of a Circular Economy: Focus necessarily needs to shift to a more circular, “take, make, refurbish, repair, reuse” model, the manufacturing sector could look at how it can create jobs around the products it makes, rather than find ways to create more jobs making those products. India may not become the ‘making’ capital of the world — but it can become the ‘remaking’ and ‘reusing’ capital.

• Government needs to take steps to tackle the following:

• • • Unavailability or high price of raw materials
    • Limited domestic demand
    • Competition from foreign markets, and uncertainty about taxation
    • Legislative and regulatory regimes
    • Lack of digital culture and talent – to help streamline operations, which will lead to an improvement in business output

• The manufacturing sector expects government support in the following areas—

• • A clear manufacturing policy – that spells out priority sectors and how we will build competitive advantage in a way that is consistent with our obligations to the World Trade Organization (WTO)
  • Development of a long-term roadmap for educating and skilling the workforce,
  • Access to finance and favourable tax incentives
  • A clear and stable policy environment for long-term investment planning
  • Facilitate fast-track implementation of these projects
  • Refined data protection laws
• Need to build on Advantages: India should focus on building competitive advantage and global scale in sectors where we have a large domestic market and certain inherent capabilities. Five priority industries –
  • Defence: We are the world’s leading arms importer. Localising what we buy as a condition for all defence deals along with a willingness to allow majority foreign ownership can turbocharge our local defence industry.
  • Electronics hardware: India imports $45 billion of mobile phones, computers and communications hardware; by 2020, this is projected to grow to $300 billion and exceed our oil import bill. This is unsustainable. We have to create policy incentives to create a local electronic hardware manufacturing ecosystem. Since most component suppliers, Original Equipment Manufacturers and Original Design Manufacturers are Chinese, this will necessarily imply incentivising Chinese companies to establish factories in India.
  • Construction: India will invest a trillion dollars over the coming years in improving infrastructure. We need to create incentives that not only spur investment in manufacturing materials such as cement and steel but also construction equipment, locomotives, power generation equipment and so on.
  • Health care: India’s generic pharmaceutical industry is world class. India is also exceedingly good at frugal innovation in medical devices such as low cost X-ray and ECG machines. We have a real shot at being a world leader in innovation and manufacturing in this space.
  • Agro-industries: We are one of the largest agricultural nations, and a third of what we grow just rots and spoils. Investing in agro-industries such as food processing and establishing a reliable cold chain would make a huge difference in terms of rural employment and food security.
  • In other industries, whether it be textiles, toys, or automotive, we need to ensure that we do not disadvantage local manufacturing.

Refer: Mindmap + Mindmap + Link + Link + Link

Connecting the Dots:

1. ‘Make in India’, ‘Start Up India’ and associated labour reforms can transform the manufacturing landscape in India. Discuss. Also examine the associated challenges.
2. The government through various interventions and policies has tried to make manufacturing a dynamic sector, one of which is the emphasis on skill development. Examine the policies and interventions in the area of skill development and also evaluate their effectiveness.

Note:

Index of Industrial Production (IIP)

• Prepared by the Central Statistics Office
• To measure the activity happening in three industrial sectors namely Mining, Manufacturing, and Electricity.
• It is the benchmark index and serves as a proxy to gauge the growth of manufacturing in India since manufacturing alone has a weight of 77.63 per cent in the index.

Index in use: Nikkei India Manufacturing Purchasing Managers Index (PMI)