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India’s Manufacturing Sector
Context: India’s urbanisation will move millions of agricultural workers to cities. Failure to create low-skilled jobs could strain governance, while manufacturing success will boost trade, employment, and national security.
Manufacturing Base Must Improve
- 2014 Goal: India committed to increasing manufacturing as a percentage of GDP from 15% to 25% by 2025.
- However, manufacturing, which usually accounts for 16.3% of nominal GVA, decreased to 14.4% in 2021-22 as per Economic Survey 2021-22.
- It further declined to 13% of GDP in 2022.
- India is lagging behind hubs like Vietnam, Bangladesh, Malaysia, and China.
- Viksit Bharat Sankalp’ Action Plan: Aims to transform India into a developed country by 2047.
- India has the capacity to export goods worth US$ 1 trillion by 2030.
- However, India must address key domestic imperatives to bolster its manufacturing sector:
- Creating substantial job opportunities by transitioning agricultural labourers to more productive sectors
- Addressing the $250 billion goods trade deficit fueled by substantial imports like electronics
- Leveraging the services sector’s $160 billion surplus which provides limited employment.
Economic and foreign-policy priorities
- Focus: Improving infrastructure investment, ease-of-doing-business ranking and strengthening domestic manufacturing base.
- Manufacturing Goals: The long-term objective is to double India’s share of global manufacturing from 5% in 2030 to 10% by 2047.
- India is likely to surpass Japan and Germany to become the world’s third-largest economy by 2027-28.
- India is committed to ‘Neighbourhood First Policy‘ while maintaining strategic autonomy & multi-alignment, with the US as principal strategic partner.
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U.S. Stake in Indian Manufacturing: Stronger manufacturing will bolster India’s regional security role and improve the viability of U.S. supply chains.
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Challenges
- Most factors of production like power, water, labour laws, land acquisition are controlled by state governments, not the central government.
- The government’s attempts to encourage state competition and reforms have fallen short.
- The “Business Reforms Action Plan” rankings haven’t been updated since COVID-19.
- Getting states to focus on effective industrial policies is a major challenge that requires better incentives and coordination.
Recommendations
- The central government should focus on job-creating manufacturing sectors like textiles, paper, and furniture, not just capital-intensive industries
- The U.S. can engage more directly with Indian states to provide guidance on effective economic governance and facilitate investor engagement
- U.S. officials visiting India should go beyond Delhi-Mumbai-Bengaluru circuit and engage a wider set of large states.
Government Measures to Boost the Manufacturing Sector
- Make in India, transforming India into a global manufacturing hub.
- Production-Linked Incentive (PLI) scheme boosts India’s global competitiveness.
- National Manufacturing Policy
- Startup India
- Reforms like skill development programs, infrastructure projects, and business reforms enhance manufacturing competitiveness and strength.