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Updated: September 19, 2013 02:33 IST

Pulling manufacturing out of the rut

Arun Maira
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It is the only sector that can create jobs and prevent the economic crisis from deepening

In the last two decades, the Indian economy has witnessed a transformational change to emerge as one of the fastest growing economies in the world. Economic reforms unveiled in 1991 have brought about a structural shift enabling the private sector to assume a much larger role in the economy. GDP growth has largely been enabled by growth of the services sector. The worry is that India’s manufacturing sector has stagnated at about 16 per cent of GDP, with India’s share in global manufacturing at only 1.8 per cent. This is in stark contrast to the experience of other Asian nations at similar stages of economic development, particularly China where manufacturing constitutes 34 per cent of GDP and 13.7 per cent of world manufacturing — up from 2.9 per cent in 1991.

Socio-political consequences

The Institute of Applied Manpower Research estimates that 8 to 9 million additional young persons will join the labour force annually, between 2012 and 2022. Additionally, with productivity improvement jobs in agriculture are declining. Therefore, India must create over 200 million jobs outside agriculture by 2025. A large burden of this job creation must fall on the manufacturing sector which has so far been a laggard. Failure to create the jobs required will have serious socio-political consequences.

Besides the employment imperative, growth of the manufacturing sector is also critical for ensuring that India’s trade balance is corrected. The country has been happily importing large volumes of manufactured goods as its economy has grown, which has pleased citizens no doubt. But it has not been able to develop a large, competitive manufacturing base to dampen the need for imports and to export.

There are two broad failures in India’s development since the 1990s which explain why India’s manufacturing sector has languished while high-end information services have grown. The first is the glaring failure to develop power and transportation infrastructure commensurate with the needs of the economy. IT industries are far less dependent on this infrastructure for their operations than are manufacturing units. The second is the absence of an industrial policy, an idea that Indian economists and policymakers threw out of the window when they dismantled the stifling controls of DGTD (Director General of Trade and Development) on industry and lowered duties on imports in 1991. Both these were welcome steps. But the baby was also thrown out with the bathwater. For the last 20 years, even the mention of the need for a concerted industrial policy for India has been taboo.

The National Manufacturing Policy which was introduced in 2011 is a belated departure from the policy neglect of earlier years. It must address the challenges of rapid job creation and expansion of domestic production. It has ambitious goals. These are to create 100 million additional jobs in manufacturing by 2025 by accelerating the growth of manufacturing to exceed the overall growth of the economy by an additional 2 per cent to 4 per cent annually. Thereby the share of manufacturing in the overall growth of the economy will also increase from 16 per cent, where it has been stagnant, to 25 per cent.

Two points must be made here while mentioning these goals. The first is that the summation of the bottom up plans made by the producers and policymakers associated with the various manufacturing sectors results in the same numbers. Therefore they can be achieved. The second point is that these plans were made when the forecast of growth of the economy was 8 per cent in the 12th Plan and faster growth thereafter. The 2 per cent to 4 per cent growth is over and above the base level growth. If the base falls due to other macro-economic problems and policy log-jams, which has happened, the growth of the manufacturing sector will be lower and it will not meet its employment targets. However the need to create jobs will not reduce. Young people will continue to pour out of schools and colleges and many with better skills too. They will be very disappointed if they do not get jobs.

New Manufacturing Policy

It is imperative that three sets of actions are taken simultaneously to prevent a socio-political crisis. One is the stimulation of overall economic growth which the new Governor of the Reserve Bank, the Finance Minister, and the Prime Minister are focussed on. The second is the sorting out of the multiple policy and implementation problems besetting India’s power and transport infrastructure that are now receiving high level attention in the PMO and the Cabinet. The third is the implementation of plans to convert the New Manufacturing Policy to results.

The implementation plan to convert India’s Manufacturing Policy to results has been drawn up by 26 working groups: 16 working on specific industries’ plans, and 10 working on cross-cutting issues that affect all industries, such as the business regulatory environment and human resource and labour issues. Steered by a systematic process, the plans of these working groups converged on five major strategic thrusts to grow Indian manufacturing.

1. Improving the business regulatory framework

2. Human asset development

3. Improving technology and value addition in manufacturing

4. Developing effective clusters for growth of SMEs (small and medium enterprises)

5. National Investment and Manufacturing Zones (NIMZs)

Effective strategies for boosting the manufacturing sector and employment growth must satisfy three important criteria:

i. Immediate impact on growth of employment: effectiveness in creating jobs without prolonged gestation periods is an important criterion in determining which strategies should be given the most attention now.

ii. Countrywide applicability: This will ensure livelihood opportunities are provided to people all across the country, not just in select industrial pockets.

iii. Growth of the MSME (micro small and medium enterprises) sector: This sector has emerged as a vital sector of the Indian economy. It not only plays a crucial role in providing large employment opportunities at a comparatively lower capital cost, it also contributes substantially to manufacturing output. It is estimated that the MSME sector contributes about 45 per cent of manufacturing output and 40 per cent of total exports of the country.

The NIMZ strategy in the National Manufacturing Policy has captured the imagination of the country. This is a big, audacious strategy and will no doubt have a substantial impact on India’s manufacturing when these zones are up and running. They require acquisition of large pieces of land and the building of modern infrastructure. The large urban-industrial estates along the Delhi-Mumbai Industrial Corridor (DMIC), approved in 2007, are fore-runners of the NIMZs. The first DMIC zones are expected to be ready in 2019. The first NIMZs are likely to be ready even later.

Accelerate action

Since we must stimulate manufacturing growth much faster and across the country too, we must turn to the other four strategies listed above. Not only can these be implemented immediately; they require hardly any money to implement which is a great advantage when the Finance Minister is constrained to squeeze plan funds to reduce the fiscal deficit. Action on these four strategies has begun, but it must be accelerated. To put more force behind these strategies, the following actions are required.

1. Communicate the essentials of the Manufacturing Plan widely to politicians, policymakers, the public, and to industry associations. (Sadly, even many industry leaders think the National Manufacturing Policy is only about NIMZs!)

2. Focus action in the States. Eighty per cent of the action for improving the business regulatory environment, human asset management practices, and quality of clusters is in the States. States must be alerted to what they can do, the benefits of which will be more investment in the States and more jobs.

3. At the Centre, resolve inter-ministerial issues fast to facilitate induction of technology and increase value addition in several sectors, including electronics, defence and capital goods.

(Arun Maira is Member, Planning Commission)

More In: Lead | Opinion

The forces of liberalization and globalization also impacted the growth
of our indigenous manufacturing sector. Increased competition led to the
closure of several indigenous manufacturing units.
The need of the hour is to upgrade the methods of production so as
remain competitive in a globalized world without sacrificing the
employment potential.

from:  Shaswat
Posted on: Sep 21, 2013 at 08:54 IST

Even after so many years we are not able to manufacture good NAIL CUTTER , which we have to depend China.
Only encouraging indian manufacturer will help to over come imbalance in the economy.

from:  Rajesh Jain
Posted on: Sep 19, 2013 at 23:26 IST

It has been long overdue. Industrial Development is a must for a
developing country as large as India. It is the path that has to be
tread when aspiring to be a developed nation. Manufacturing is the
sector that can create jobs. Sadly what happened was we were over
protective of MSME and took a long time striking out sectors from the
MSME list. This had led to inefficiency in manufacturing as capital
was spread around by growing companies. Anyway better late than never.
Power, transport infrastructure and manufacturing are the three most
important reforms for India.

from:  Karthik
Posted on: Sep 19, 2013 at 15:13 IST

After going through turbulent time's and getting a taste of political
and executive misadventures, the situation is ripe to seriously revamp
our economy and particularly manufacturing industry as author pointed
out.

from:  Gaurav Purohit
Posted on: Sep 19, 2013 at 13:49 IST

Nice article...We lost the very precious time from 2008 onwards when FII's started pouring in.We should have utilised that money for creating Infrastructure.we still dependent lot on FII's which are very volatile.we are depending on imports for everything,we totally neglected domestic manufacturing.coming years with this population growth we need solid domestic manufacturing which can provide employment to millions.we should save foreign exchange from these manufactured goods to pay for oil and natural gas/coal.

from:  prasanth
Posted on: Sep 19, 2013 at 13:36 IST

While policy definitely a necessity, equally important is the way it is done. While so much talk always goes into what should be done, what is done in the end after endless efforts is also equally important.
What is the point of a policy, if at ground, things happen in a way not "envisaged" in a policy: we will have a broken system, as we are having now. Some might argue, having a broken system is better than not having any system at all, this does not definitely mean the planning process has to be independent of the final outcomes of the planning.
At present, huge number of government/non-government agencies are involved in manufacturing. It is generally overlooked by our planners thinking that it will automagically take care of itself.
This thinking has to change if we want a forward-looking economy.

from:  Venkataswami Iyyer
Posted on: Sep 19, 2013 at 12:51 IST

Manufacturing, no doubt is an important sector for the upliftment of the nation, but implementing such initiatives in a cash stripped situation as now; is it wise?
Considering the current level of education and skill penetration in India, is it not high time that we start paying heed to the development of small scale and cottage industries, as was postulated by P.R. Brahmanand and C.N. Vakil in 1956. It is also an equally great job creator and income raiser. Why is it that we still see small businesses with scorn. Why is it that our minds associate national development with huge structures of steel and machines?
The East Asian countries have been able to go in for such models. True, they might have had occassional economic troubles, but after all, neither have we achieved the desired significant drop in levels of poverty, which was a "basic structure" of our economic model.

from:  Thomas Tharakan
Posted on: Sep 19, 2013 at 12:50 IST

Finally ,someone is focussing on the need to develop manufacturing sector which should be done long ago ,manufacturing sector is behind because of total neglect from every government too much hassles,bureaucracy ,coruption is eating up manufacturer, i hope something is done to save small manufactures also

from:  aman
Posted on: Sep 19, 2013 at 12:27 IST

It is an accepted fact that during the last decade or so we have
neglected our manufacturing and allowed unscrupulous importers to
import consumer goods and make trading profits.
We have not shown courage to abandon populist policies and implement
reforms and as a result we are facing low or negative growth,
inflation, and high current account deficit.
Industry’s representative bodies always clamour for low interest
rates, low cost of land, tax incentives, less bothersome labour laws,
low power tariff, etc. Question is how many industrialists are ready
to utilize all these facilities, if one may call them so, to create
jobs? Time has come to demand implementation of right policies to
promote manufacturing and for the industry too to increase
productivity.

from:  Narendra M Apte
Posted on: Sep 19, 2013 at 12:15 IST

In a very succinct fashion, the honourable memmber of the planning commission has underlined the action to be taken to enhace the growth rate of our economy, which must be led and sustained by manufacturing sector and also it should be labour intensive not capital one so that the energies of the eagar youth may be harneessed constructively, otherwise demographic dividend would become a nightmare. History is witness that india rise to the occassion belatedly but it does rise and stand firmly and successfuly.

from:  Gopendra Dwivedi..
Posted on: Sep 19, 2013 at 12:14 IST

Finally, someone talking sense! It is quite obvious that reaping the
transient benefits of services is bound to fall if not supported by
manufacturing which has been spiralling downwards due to government
policies. Only big companies (like IT and other corporates) with clout
can have some kind of setting with government allowing them to bypass
all that bureaucratic garbage. In turn, corporate eats into public
funds by influencing policy makers and getting more "returns".
The government should facilitate manufacturing by local small scale
industries as that is what will really develop India. And also
encourage exports on local level.

from:  raman
Posted on: Sep 19, 2013 at 11:32 IST

An article with a good flow of facts.This gives clear-cut points for
employment creation.Thanks Aruna

from:  Venkat
Posted on: Sep 19, 2013 at 11:26 IST

The Author has rightly emphasised the need for "Improving technology
and value addition in manufacturing". Indigenous design, manufacture,
construction, commissioning, operation and implementation of safety in
all aspects of Nuclear Power Plants (NPP) should very much be in this
category. Yet, as reported in another news item titled "Manmohan may
carry nuclear liability dilution as gift for U.S. companies" in
today's Hindu News Paper, GOI is bent upon importing NPPs at
exorbitant costs even as adequate expertise and technology is
available in India. The money that is proposed to be spent abroad in
foreign exchange should actually be spent in enhancing manufacturing
output within our country. On the other hand, sad to say that I have
not come across any news report or article indicating that the
Planning Commission has at any time opposed this move towards "whole-
sale" import of NPPs.

from:  Udhishtir
Posted on: Sep 19, 2013 at 10:45 IST

Manufacturing is also boost for the regional languages. Unlike the
service sectors which creates compulsion to study in English Medium
rather than Learning English. Now this compulsion has almost succeeded
as we find most of the parents even in poorer sections willing their
students to study in English Medium schools hoping to get good job,
Because service sector requires proficiency in English, Creating an
Illusion mostly for middle class English Medium for a better future.
Manufacturing demands technical skills which don't require to study
in English Medium to acquire them. Learning machines requires
analytical thinking. Yes of course, you require English or a foreign
language to cooperate with fellow workers. We should understand how the
Germans, Japanese, Koreans, Taiwanese and our favorites, Chinese which
are the manufacturing hubs of the world.
Language movement beds like Tamil Nadu should take this initiative
and serve the example to the Disillusioned Nation

from:  Kranthi Kiran
Posted on: Sep 19, 2013 at 07:28 IST

Very timely article. Indian government has not yet come out of the colonial policy that encouraged import of finished equipment (call it trading) and discouraged local manufacture by imposing heavy duties on imported raw materials and components and high taxes and severe restrictions on local manufacture making it difficult to compete with cheap foreign products. Our large companies seem to be happy with trading, monopolizing high value imports. When the public sector failed to deliver, the govt allowed import from a private manufacturer abroad, but did not allow the Indian private sector to get into these restricted items. Discriminating against its own citizens. We see the results now.. large number of mufacturing and assembly units that have closed down encouraging further imports of cheap goods from China. How can we ever become a real global technology power?

from:  P M Vishwanath
Posted on: Sep 19, 2013 at 05:02 IST

I am glad someone at the policy think-tank is talking about the
importance of manufacturing and the consequence of failure to improve
the situation. I am appalled at the lack of a sense of urgency among the
policy makers and the govt for the lagging manufacturing sector. India
is staring at very serious socio-political upheaval, recent spate of
crime and violence in urban areas are a precur of things to come.

from:  Suvojit Dutta
Posted on: Sep 19, 2013 at 03:42 IST
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