Mains Marathon 2024

Approach Briefly state the current status of the manufacturing sector in India and its share in GDP. Mention the need for an increase in the manufacturing sector. Highlight the challenges related to the manufacturing sector. Conclude by proposing solutions to overcome the challenges.

Introduction

The manufacturing sector contributes approximately 17% of India's GDP and employs over 27.3 million workers, playing a significant role in the country's economy. The Indian government aims to increase the manufacturing sector's contribution to 25% of the economy's output by 2025.

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Need for Increase in the Manufacturing Sector:

• Broad Domestic Market and Demand: The Indian manufacturing sector has seen strong demand for their goods from both domestic and external clients.
  • PMI in May 2024 (58.8), shows expansion in India's manufacturing sector.
  • The manufacturing sector of India has the potential to reach USD 1 trillion by 2025.
• Sectoral Advantage: Key manufacturing sectors in India, such as chemicals, pharmaceuticals, automotive, electronics, industrial machinery, and textiles, have experienced significant growth in recent years.
  • In India, pharmaceutical manufacturing costs are 30%–35% lower than in the US and Europe.
• Job Creation: Manufacturing is a significant employer. It creates jobs both directly and indirectly. In addition to providing employment opportunities to factory workers, it also supports jobs in logistics, transportation, marketing, and other related industries.
  • The Economic Survey 2023-24 notes that the Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce.
• Export Potential : A robust manufacturing sector can significantly improve India's export capabilities. As per the UN, Indian manufacturing is shifting in Global Value Chains (GVC) from Europe to Asia. This shift presents opportunities for Indian firms to establish their own GVCs and for India to become a regional growth pole.
  • India has the capacity to export goods worth US$ 1 trillion by 2030.
• Rise of MSME: MSMEs currently contribute approximately 30% to GDP, playing a crucial role in driving economic growth and contributing nearly 45% of India's total exports.
  • The share of MSME manufacturing output in all India Manufacturing output during the year 2019-20, 2020-21 and 2021-22 was 36.6%, 36.9% and 36.2% respectively.
• Competitive Advantage: Growth in India's manufacturing sector, driven by increased production capacity, cost advantages, supportive government policies, and private investment, is setting the stage for sustained economic growth in the coming years.
  • From promoting domestic production through the Make in India initiative to incentivizing investment via the Production Linked Incentive Scheme, these governmental efforts are designed to enhance the competitiveness of Indian manufacturing.

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.
  • A World Bank report estimates that India will need to invest $840 billion over the next 15 years.
• 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.
  • The Expert Committee on Micro, Small and Medium Enterprises, constituted by Reserve Bank of India in December, 2018 has estimated the overall credit gap in the MSME sector to be in the range of Rs. 20 to Rs. 25 trillion
• 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.
  • The World Bank’s Ease of Doing Business Index ranked India 63rd out of 190 countries in 2020, highlighting challenges in regulatory frameworks.
• 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.

Conclusion

A substantial increase in the manufacturing sector's share of GDP is crucial for faster economic growth in India. By enhancing GDP, creating jobs, driving technological innovation, boosting exports, diversifying the economy, and promoting regional development, manufacturing can play a transformative role in India's economic landscape. To realize this potential, the government must implement effective policies to address infrastructural deficits, regulatory challenges, and skill development needs. Achieving a stronger manufacturing base is not only an economic imperative but also a pathway to a more prosperous and equitable society.