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Low- & High-Skilled Jobs: Gap Rising Amid Manufacturing Stagnation
Context:
- India’s economic growth, driven by the services sector (IT, banking, finance), has coincided with a decline in traditional industries like apparel and footwear, widening the gap between high- and low-skilled jobs.
- Manufacturing stagnates at 14%, far from the 25% target.
Economic Growth Driven by Services Sector:
- India’s growth in the past two decades has been led by the services sector, notably IT, banking, and finance.
- Decline in traditional industries (apparel, footwear) has impacted low-skilled job opportunities.
- Manufacturing remains stagnant at 14%, below the 25% target, exacerbating the high-skilled and low-skilled job gap.
Decline in Labour-Intensive Jobs:
- Stagnation in manufacturing has led India to fall behind Bangladesh in textiles, Thailand in machinery, and Vietnam in electronics.
- Economic Survey 2023-24 highlighted the need for 7.85 million non-farm jobs annually.
- Unemployment increased from 7% to 9% in June 2024.
World Bank Report: Decline in Export-Related Jobs
- Export-related employment declined from 9.5% (2012) to 6.5% (2020) of total domestic employment.
- Service and high-skill manufacturing sectors dominate India’s export basket, creating fewer jobs.
Missed Opportunities in Low-Skill Manufacturing:
India missed capitalising on China’s exit from low-skill manufacturing (2015-2022), allowing countries like Bangladesh, Vietnam, and Germany to benefit.
Government Initiatives to Boost Manufacturing:
- Seven PM MITRA Parks approved in 2023 to develop textile infrastructure with a budget of Rs 4,445 crore until 2027-28.
- Twelve industrial smart cities under the National Industrial Corridor Development Programme (NICDP) approved with an investment of Rs 28,602 crore.
Rise of Global Capability Centres (GCCs):
- Multinational companies have established 1,600 GCCs in India, utilising the country’s IT talent for core business functions.
- Despite the rise of GCCs, IT services have seen a drop in hiring, with major companies reducing headcounts by over 61,000 in 2024.
Declining Participation in Global Value Chains (GVCs):
- India’s participation in GVCs has decreased due to challenges in raw material procurement and high transport costs.
- Tariff hikes and complex procedures have further limited integration into GVCs.
High Tariffs on Input Materials:
- India’s average Most Favoured Nation (MFN) tariff rose to 18.1% in 2022 from 13% in 2014, making the country less competitive.
- The FY25 Union Budget reduced tariffs on several sectors, including electronics and textiles, but further tariff cuts are needed to improve global trade competitiveness.
PM MITRA Scheme: PM MITRA Parks will be developed in Public Private Partnership (PPP) mode, with a Special Purpose Vehicle (SPV) owned by the Central and State Government.
- Each park will feature an incubation centre, common processing house, effluent treatment plant, design centres, and testing facilities.
Implementation:
- SPV Setup: An SPV owned by the Centre and State Government will oversee the park’s implementation.
- Financial Support: Ministry of Textiles will provide Development Capital Support of up to Rs 500 crore per park and Competitive Incentive Support (CIS) up to Rs 300 crore to encourage rapid implementation.
- Convergence with Other Schemes: Additional incentives will be offered through convergence with other government schemes.