The importance of ‘Manufacturing in India' has been discussed, debated and analysed countless number of times. For the sake of recap, the key reasons for its importance are: employment for the younger generation, prevent vulnerability to imports, technology transfer, and so on.
India has however always been an outlier, with manufacturing share in GDP hovering at 14 percent to 16 percent of GDP, as compared to 25 percent to 40 percent for most emerging economies. Based on these arguments, The National Manufacturing Policy was prepared and new Industrial Corridors were established.
Yet, as a country we just don't seem to manage to grow manufacturing; in fact numbers indicate that the share of manufacturing is stubbornly stuck at around 15 percent of GDP. Manufacturing growth rate has steadily declined from a high of 11.3 percent per annum in 2009-10 to nil in 2013-14. This is indeed worrying.
As a country we must address the challenges* one by one if we want to move forward. In addition, infrastructure in terms of roads, rail and ports are comparatively more expensive when compared to China, Singapore etc. Given the time required to start a business, viability often becomes a casualty. In such a scenario, it is not surprising that the Indian manufacturing sector is not responding.
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*The basic challenges We must ask ourselves a fundamental question; what is it that is holding back manufacturing and making it uncompetitive. There are five basic factors. Land: Land has become a major bottleneck as it is either not available or it is too expensive. Further, infrastructure projects essential for industrialisation have got stalled because of challenges in land acquisition. Labour: Ironically, labour shortage is often quoted as a challenge. This is because unskilled labour has alternatives such as MNREGA and skilled labour supply is limited due to inadequate training. Capital: Capital costs in India have gone up because of high interest rates, and often it is used unproductively due to need for power backup, etc. Natural resources: Access to key raw materials such as coal, iron ore, alumina has been blocked because of regulatory bottlenecks. Regulatory environment: This has become difficult in the last five years, and India's ranking in the Ease of Doing Business, is a reflection of this. |
Having painted a somewhat bleak scenario, is it all lost? Definitely not. Can the Indian industry resurrect itself? Certainly yes.
Let's start with the highlights of the Global Manufacturing Competiveness index prepared by Deloitte. Based on responses from 550 senior manufacturing executives around the world, China was ranked number one, but India was not far behind at number 4.
We were ahead of countries such as South Korea, Taiwan, Singapore, Japan, Thailand, Mexico, Malaysia; all of them are countries that are known for their prowess in manufacturing.
What is even more encouraging is that when asked what will be the likely ranking after five years, the response was that India will rise to the number two slot. Just behind China, but even ahead of Germany.
(Mr Shriram had written this article when he was still the President of CII)
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