Manufacturing may be the Achilles Heel of India’s economy. Twenty years after the momentous economic reforms of the 1990s -- the removal of controls on industry and the reduction of import tariffs — Indian consumers are enjoying a great variety of products, many imported. But India’s manufacturing sector has been languishing at 16 per cent of its GDP, whereas China’s is 35 per cent. And a lot of what passes as manufacturing in the country is assembly of imported components. Freedom to import with low or no duties has created a class of traders who masquerade as industrialists, quite different to the genuine industry builders like Jamsetji Tata and JRD Tata, who took pride in creating Indian capabilities to compete with the world.
India has belatedly recognised the need for a Manufacturing Policy, which was announced in 2010, and was followed by a systematic Manufacturing Plan for the country developed with extensive involvement of industry. Now we must focus our energies on implementing this Plan.
The large self-governing enclaves in a few spots around the country, that the National Manufacturing Investment Zones (NMIZs) are conceived to be, will take many years to build even after land has been acquired. The millions of young people who will need jobs in the next few years — India’s presumed demographic dividend — have already been born and their growth will not wait for the completion of NMIZs to stimulate manufacturing and create jobs. Quicker and more widespread solutions have to be implemented for stimulating manufacturing growth across the country to avoid an impending crisis of unemployment.
Here are four quick steps: 1. Improve the business regulatory environment, principally in the States. 2. Focus on the quality of clusters in which MSMEs – the backbone of the manufacturing industry – operate as they are difficult to service individually and do not have sufficient clout in policy circles. 3. Improve the development and utilisation of India’s demographic assets. Human beings must be treated as the core asset of our manufacturing enterprises and not as a problem to be avoided. No doubt we need a change in our labor laws. What the changes should be must be determined by a consultative process amongst the stakeholders. Moreover without a consensus it will be politically impossible to change the laws. 4. Create the right set of policies to improve technology and increase value addition within the country, thus enabling reduction of imports and increase in exports and employment.