A Fundamental Reset to Drive Manufacturing Growth
Kartavya Desk Staff
Syllabus: Economy
Source: TH
Context: The recent article highlights the urgent need for a structural reset in India’s manufacturing sector to boost competitiveness and productivity in the context of global shifts towards high-tech, innovation-driven industries.
About A fundamental reset to drive manufacturing growth:
Status of Indian Manufacturing
• Current Contribution: Manufacturing contributes 16–17% to India’s GDP and employs over 6 crore workers (MoSPI, 2023).
• Export Performance: Manufacturing exports reached an all-time high of $447.46 billion in FY23, registering 6.03% growth over FY22.
• Global Vision: India aims to increase manufacturing’s GDP share to 25% by 2025 and add $500 billion to the global economy by 2030.
• Industrial Growth Indicator: The HSBC Manufacturing PMI touched a 16-year high of 59.1 in March 2024, reflecting robust growth in output and employment.
• FDI Inflows: India received $165.1 billion FDI in manufacturing in the last decade, up 69%, showing strong investor confidence.
Challenges Faced by Indian Manufacturing:
• Low Productivity and Value Addition: India’s per capita value added in manufacturing is $0.32K, compared to the world average of $2K (World Bank, 2023).
• Inadequate R&D Investment: R&D expenditure is only 0.7% of GDP, much lower than South Korea (4.8%) or China (2.4%).
• Skill Gaps and Education-Industry Mismatch: Only 48.7% of India’s workforce is considered employable (India Skills Report 2023), with low exposure to industry 4.0 tools.
• Weak Infrastructure and Logistics: Logistics costs in India stand at 14–18% of GDP, compared to 8–10% in developed economies.
• Policy Instability and Bureaucratic Bottlenecks: Delays in land acquisition and regulatory clearances deter investments; India ranks 63rd in Ease of Doing Business.
• Import Dependency: India heavily depends on imports for semiconductors, electronics, and EV batteries, leading to trade imbalances (China trade deficit: $85 billion, FY24).
• Fragmented MSME Ecosystem: Only 14% of 64 million MSMEs in India have credit access; tech adoption remains minimal among them.
Key Government Initiatives:
• Make in India (2014): Promotes local manufacturing across 25 sectors; aims to transform India into a global manufacturing hub.
• Production Linked Incentive (PLI) Scheme: Covers 14 sectors and is expected to generate $500 billion worth of additional manufacturing output.
• Gati Shakti National Master Plan: Integrates multi-modal transport and logistics to reduce supply chain bottlenecks.
• FAME-II Scheme: Boosts electric vehicle (EV) production with subsidies on vehicles and battery manufacturing.
• PM Kaushal Vikas Yojana (PMKVY): Offers skill development in advanced manufacturing aligned with global production standards.
• Digital India and Industry 4.0 Push: Encourages digitization of MSMEs and the adoption of IoT, AI, and robotics in manufacturing.
Way Ahead:
• Scale Up R&D and Innovation Ecosystems: Raise R&D spending to 2% of GDP and set up Manufacturing Innovation Fund to support advanced research.
• Upgrade Technical Education and Labs: Reform engineering education with 50% focus on practical work, advanced labs, and industry collaboration.
• Strengthen Core Engineering Sectors: Prioritize civil, mechanical, electrical, and chemical engineering for building indigenous industrial capabilities.
• Build Industrial Infrastructure: Invest an additional 1% of GDP to create plug-and-play manufacturing parks with in-house design, testing, and certification units.
• Enhance Global Value Chain (GVC) Integration: Re-negotiate trade deals and focus on SEZs, export processing zones, and logistics infrastructure near ports.
• Support MSMEs: Provide credit guarantees, tech training, and global market access to uplift MSMEs’ contribution to GDP and exports.
• Adopt Green and Circular Manufacturing: Incentivize renewable energy in factories and integrate Extended Producer Responsibility (EPR) policies across sectors.
Conclusion:
India stands at a critical juncture where structural reforms and bold investments in R&D, infrastructure, and skills are essential to uplift manufacturing. Global headwinds offer opportunities to position India as a credible alternative in global value chains. By aligning education, policy, and innovation with industrial goals, India can transition from an assembly economy to a global manufacturing powerhouse.
• “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (2017)