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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

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Quick Revise Now !
AVAILABLE FOR DOWNLOAD SOON
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध
Quick Revise Now !
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध

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