At The Root Of India’s Manufacturing Challenge

Context:

In the early 2000s, India’s booming software exports sparked discussions on whether the services sector could drive the economy forward, challenging the conventional model of economic development.

Most successful economies have seen industrial expansion preceding other sectors, causing frustration among Indian policymakers.

Limited Impact of Economic Reforms on Manufacturing:

Despite the economic reforms of 1991 that focused on manufacturing, there was no significant increase in its share in the economy.
However, there has been a qualitative change in the manufacturing sector since 1991, with improved product range and quality.

Unimpressive record:

Manufacturing initiatives in India, such as “Make in India” and the Production-Linked Incentive scheme, have not yielded impressive results.
The first advance estimates for 2022-23 show manufacturing growth at 1.3%, lower than agriculture and other service segments.
The slowdown in the manufacturing sector can be partially attributed to the impact of demonetization in 2016, but there are also structural factors hindering its growth.

Need for Manufacturing Push and Supporting Factors:

- Government initiatives and policies favoring the corporate sector aim to boost manufacturing and raise the growth rate.
- Public investment, such as increased capital expenditure, can aid the private sector by stimulating aggregate demand.

Demand Constraints and Manufacturing Export Potential:

The demand for manufactured goods in India is influenced by the satisfaction of basic needs like food, housing, health, and education.
Food expenses constitute a significant portion of household expenditure in India, limiting the growth of demand for manufactured products.
Compared to wealthier countries like the United States and Singapore, India has a higher share of food expenditure and a lower GDP per capita.
Manufacturing sectors can overcome a limited domestic market by focusing on exports, as seen in the success of smaller East Asian countries.
Infrastructure and the skill level of the workforce are crucial factors for a country to become a successful exporter of manufactured goods.
Challenges faced by Indian exporters include difficulties in reaching seaports, poor infrastructure and practices in ports, and longer turnaround times for ships compared to countries like Singapore.
Ports play a vital role in exports, and some traders in Kerala have resorted to using ports outside the state due to lower costs.
Besides transportation, factors such as affordable power, sufficient space, and proper industrial waste disposal services also contribute to the competitiveness of manufacturing.

Educational outcomes in India:

India’s educational system has lagged behind the countries that have achieved manufacturing success.
The Programme for International Student Assessment ranks India among the lowest-performing countries out of a group of about 75 nations, while East Asian countries excel in educational outcomes.
Assessments by Pratham, a non-governmental organization, highlight the poor reading ability and numeracy skills of Indian children in their early years.
Leading Indian employers have expressed concerns about the lack of employability among university graduates, including those from prestigious institutions like the Indian Institute of Technology.
India’s focus on expanding universities to cater to the aspirations of the middle class has neglected the need for skilled workers in trades like carpentry, plumbing, and mechanics.
There is a lack of formal assessment or sufficient vocational training institutes in India, with only about 5% of Indian youth receiving technical training compared to over 85% in South Korea.
With such a labor force, it is unrealistic to expect India to become a prominent player in manufacturing on the global stage.

The Need for a Comprehensive Ecosystem for Manufacturing:

The economic reforms of 1991 overlooked the need for a supportive ecosystem, including education, training, and infrastructure.
Building a comprehensive ecosystem requires more than just legislative reforms, as liberalizing measures have reached their limit in India.

News Source: The Hindu