Answer

India’s manufacturing sector contributes 17% to GDP but heavily depends on cheap labor, with over 70% of workers in small, unregistered enterprises (PLFS 2023-24). Meanwhile, low R&D spending (0.7% of GDP) limits technological innovation, hindering global competitiveness. 

Challenges faced by India’s manufacturing sector due to reliance on cheap labor and lack of technological innovation

• Long Working Hours & Low Productivity: Indian workers put in longer hours than their global counterparts but remain less productive due to outdated technology and inefficient management.
  For example: According to the ILO (2024), Indian workers average 46.7 hours per week, significantly higher than the United States (38 hours) and Japan (36.6 hours), yet with lower productivity.
• Stagnation in Small Firms: Over 70% of manufacturing workers are employed in small, unregistered enterprises that lack access to advanced machinery and financial support, limiting growth potential.
  For example: In Ludhiana and Coimbatore, small factories produce auto parts and machinery components, but owners struggle with delayed payments from larger firms, restricting technological investments.
• Exploitation of Contract Workers: Since 56% of factory hires after 2011-12 are contract workers, they face low wages, job insecurity, and no social security, leading to low motivation and high drop out rates.
  For example: In India’s textile industry, garment workers, mostly migrants, are paid below minimum wage, forcing them into excessive overtime to meet export demands.
• Lack of Government Support for R&D: India’s R&D investment in manufacturing remains low, making industries reliant on imported technology rather than fostering indigenous innovation and automation.
  For example: China spends 2.4% of its GDP on R&D, enabling firms like Huawei and BYD to lead in innovation, while India spends only 0.7%, limiting advancements.
• Dependency on Low-Skill Jobs: Industries focus on low-skill, labor-intensive production rather than upskilling workers for automation or AI-driven processes, hampering long-term industrial progress.
  For example: Unlike Vietnam, which upskilled workers in high-tech electronic manufacturing, Indian firms rely on manual assembly in sectors like automobiles and textiles, reducing global competitiveness.

Impact of over-reliance on cheap labor on India’s global competitiveness

• Weak Performance in Exports: India’s global share in garment exports remains stagnant at 3.1% over two decades, as firms avoid upgrading technology and automation to compete internationally.
  For example: Bangladesh and Vietnam, despite having lower labor costs, surpass India in garment exports by investing in modern factories and efficient supply chains.
• Failure to Scale Up Industries: The dominance of small, unregistered firms prevents India from building large-scale, high-tech industries, reducing economies of scale and cost competitiveness.
  For example: China’s electronics sector grew by consolidating large firms, while India’s fragmented supply chain hinders competitiveness in global electronics markets.
• Inability to Compete in High-Tech Sectors: With a lack of investment in automation, AI, and robotics, India lags in high-value manufacturing sectors like semiconductors, aerospace, and electric vehicles.
  For example: Tesla and Samsung choose Vietnam and China for manufacturing due to better technological capabilities, bypassing India despite its large workforce.
• Depressed Domestic Demand: Low wages lead to weakened purchasing power, limiting demand for industrial goods and consumer products, restricting domestic economic expansion.
  For example: India’s automobile sector underperforms compared to China, where rising wages fueled strong domestic demand for vehicles, supporting industry growth.
• Short-Term Profit over Long-Term Growth: Indian firms maximize short-term profits through low wages but fail to invest in efficiency improvements, making them vulnerable to global disruptions and competition.
  For example: India’s textile exports declined as Western buyers preferred sustainable and automated factories in countries like Turkey and Bangladesh, which invested in modern production techniques.

Way Ahead for Strengthening India’s Manufacturing Sector

• Adopting Automation & AI: Encouraging automation, AI, and robotics can boost efficiency and reduce labor dependence.
  For example: China’s Made in China 2025 policy helped firms like Foxconn scale up with automation.
• Formalizing Small Enterprises: Financial aid, easy credit, and tax incentives can help small firms modernize and integrate into supply chains.
  For example: Japan’s Keiretsu model links small suppliers with corporations like Toyota, ensuring stability and upgrades.
• Upskilling Workforce: Expanding vocational training, STEM education, and internship can create a high-tech workforce.
  For example: NEP 2020 aligns the curriculum with industry needs through expert collaboration, emphasizing apprenticeships and industry-academia partnerships to enhance practical learning and student employability.
• Boosting R&D & Innovation: Increasing public-private R&D investment can drive indigenous innovation and reduce import dependence.
  For example: South Korea invests 4.5% of GDP in R&D, enabling firms like Samsung and Hyundai to lead globally.
• Labor Reforms & Social Security: Balanced labor laws can enhance productivity and attract global investors.
  For example: Vietnam’s labor reforms drew companies like Nike and Samsung by improving worker-employer relations.

Empowering India’s manufacturing sector demands a shift from labor-intensive to technology-driven growth. Investments in R&D, skilling, and automation can enhance productivity while reducing dependency on cheap labor. Public-private partnerships and policy incentives must drive innovation, ensuring global competitiveness. A robust, tech-integrated ecosystem will position India as a leader in advanced manufacturing, securing long-term economic resilience.

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