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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