Unleashing the Potential of India's Manufacturing Sector
- 04 Jan 2023
- 10 min read
This editorial is based on “For growth, bolster the manufacturing sector” which was published in Hindustan Times on 30/12/2022. It talks about the Manufacturing Sector in India and related issues.
India's manufacturing sector is a key contributor to the country's economic growth. It accounts for about 15% of India's Gross Domestic Product (GDP) and employs around 12% of the country's workforce. The sector is diverse and includes a range of industries such as textiles, pharmaceuticals, automobiles, and consumer durables.
In recent years, the Indian government has implemented a number of initiatives to boost the manufacturing sector, including the "Make in India" campaign, which aims to increase the share of manufacturing in the country's GDP and promote the growth of domestic manufacturing. The government has also set up a number of special economic zones (SEZs) to attract foreign investment in the sector.
Despite these efforts, the manufacturing sector in India has faced a number of challenges, including a lack of infrastructure, a shortage of skilled labor, and difficulties in obtaining credit. In addition, the sector has been hit by a slowdown in global demand and increased competition from countries such as China.
However, this offers opportunities for growth in the sector, and through sustainable reforms it is expected to continue to play a key role in the development of the Indian economy.
What are the Growth Drivers of the Manufacturing Sector in India?
- Increased Investment: In Budget 2022-23, the government allocated Rs. 2,403 crore (US$ 315 million) for Promotion of Electronics and IT Hardware Manufacturing and Rs. 757 crore (US$ 104.25 million) for Faster Adoption and Manufacturing of Hybrid and Electric Vehicle inIndia (FAME - India) in Budget 2021-22.
- Competitiveness: India has all the necessary ingredients for its major industrial
- push - a huge semi-skilled labour force, multiple Government initiatives like Make in India, high investments and a big domestic market.
- Government incentives like free land to set up base and 24*7 power supply is making India competitive on a global scale.
- Robust Demand: By 2030, Indian middle class is expected to have the second largest share in global consumption at 17%. The appliances and consumer electronics (ACE) market in India is expected to grow to USD 21 billion by 2025 from USD 11 billion in 2019.
- Potential to Become a Global Hub: India’s manufacturing industry is already moving in the direction of industry 4.0 where everything will be connected, and every data point will be analyzed.
- Indian companies are at the forefront of R&D and have already become global leaders in areas such as pharmaceuticals and textiles.
- Areas such as automation and robotics are also receiving the required attention from the industry.
What are the Challenges Related to India’s Manufacturing Sector?
- Inadequate Tech Based Infrastructure: Technology-based infrastructure, especially for communication, transportation, and skilled manpower are important for enhancing manufacturing competitiveness.
- Telecom communication facilities are mainly confined to big cities. Most of the State Electricity Boards are running in loss and are in deplorable condition.
- Access to Credit for MSME: The Micro, Small and Medium-sized enterprises (MSME) sector appears to have less favorable access to credit and higher costs for working capital compared to medium and large-scale industrial and service sectors.
- Skilled Labour Shortages: There is a lack of trained and skilled labor in the manufacturing sector in India, which limits the growth of the sector.
- Complex Regulations and Poor Supply Chain: The manufacturing sector in India is subject to a number of complex regulations like license, tender, audit, which can be a burden for businesses and hinder their growth.
- Also, the sector is often plagued by poor supply chain management, which can lead to inefficiencies and increased costs.
- Competition from Other Countries and Imports: India's manufacturing sector faces intense competition from other countries, which can make it difficult for domestic businesses to compete on the global market.
- Also, India is still dependent on foreign imports for transport equipment, machinery (electrical and non-electrical), iron and steel, paper, chemicals and fertilizers, plastic material etc.
What are the Recent Government Initiatives for Growth of the Industrial Sector in India?
- Production-Linked Incentive (PLI) - To scale up domestic manufacturing capability.
- PM Gati Shakti- National Master Plan - Multimodal connectivity infrastructure project.
- Bharatmala Project - To Improve connectivity in North East India
- Start-up India - To catalyze Startup culture in India
- Make in India 2.0 - To transform India into a global design and manufacturing hub.
- Atmanirbhar Bharat Campaign - To cut down import dependence.
What Should be the Way Forward?
- Investing in Infrastructure: Improving the quality and availability of infrastructure, such as roads, ports, and power supply, could help attract more investment and businesses to the manufacturing sector.
- This could involve building new infrastructure or upgrading existing infrastructure.
- Promoting Export-Oriented Manufacturing: Encouraging the development of export-oriented manufacturing could help Indian businesses tap into new markets and increase their competitiveness.
- This could involve providing support for businesses looking to enter new markets, or implementing policies that incentivize export-oriented manufacturing.
- Fostering Innovation: Supporting research and development in the manufacturing sector, and promoting the adoption of new technologies and processes, could help drive innovation and boost productivity.
- This could involve providing funding for R&D or implementing policies that encourage the adoption of new technologies.
- Improving Access to Finance: Making it easier for small and medium-sized enterprises (SMEs) in the manufacturing sector to access credit and other forms of financing could help support their growth and development.
- This could involve implementing policies that encourage banks and other financial institutions to lend to SMEs in the manufacturing sector or providing government-backed loan guarantees to support SME lending.
- Streamlining Regulations: Simplifying and streamlining regulations could help reduce the burden on businesses and encourage more investment in the manufacturing sector.
- This could involve streamlining the process for obtaining licenses and permits or simplifying compliance requirements.
- Encouraging Skill Development: Providing more opportunities for training and skill development could help address the shortage of skilled labor in the manufacturing sector and increase its competitiveness.
- This could involve investing in vocational training programs, or implementing policies that encourage businesses to invest in employee training.
Drishti Mains Question
Examine the challenges and opportunities facing India's manufacturing sector and discuss the role of the 'Make in India' initiative in addressing these issues.