India’s economic progress depends heavily on growth in manufacturing. Over the next decade, India needs to add approximately one million jobs per month in order to benefit from the demographic dividend. Manufacturing has the ability to give a significant chunk of the young Indian population substantial employment, allowing them to break the cycle of poverty. With this in mind, the Indian government has made “Make in India” one of its main policy initiatives in an effort to promote and expedite the growth of the manufacturing sector in the country.
A potential manufacturing powerhouse
A vast pool of engineers, a young labour force, wages that are half as high as those in China, and a sizable local market for manufactured goods are just a few of India’s advantages that could help it become a manufacturing powerhouse. These aspects become even more crucial as China, the world’s top manufacturing hub, experiences a peak in the labour shortage and an exponential rise in wages.
Growth of manufacturing sector is critical
The extraordinary rise of the services sector, which today makes up nearly 50% of the GDP, has been the structural transformation of the Indian economy over the past three decades.
However, it is not a good indicator when the services sector expands quickly before the industrial sector reaches maturity. If a manufacturing economy is not sufficiently expanding, a knowledge-based economy cannot be sustained over the long term. Furthermore, a country where more than 80% of the populace only has a middle-school education cannot sustain a service economy over the long term.
The opportunity and the need
According to the results of the FICCI Quarterly Survey on Manufacturing, the recent growth momentum of the manufacturing sector is anticipated to last for the following six to nine months.
The Indian economy rebounded in the fiscal year 2021–22, and growth momentum continued in the following quarters of Q1 (April–June 2022-23) and Q2 (July–Sept 2022-23), with more than 61% of respondents reporting increasing output levels in Q2 (July-September 2022-23).
However, manufacturing’s (15–16%) percentage of the GDP is unchanged from 1991 levels. The cause of this is that manufacturing is expanding at the same rate as the GDP and the economy. Growth in the local market creates a $180 Billion GVA opportunity.
A look at the fast growing segments
Manufacturing in India is stronger in industries that require more capital, such as pharma, chemical, auto, and auto parts, and weaker in industries that require more labour, such as apparel and footwear, and food processing.
Priorities for supporting the growth of the Indian manufacturing sector
India needs to Invest in automation and technology to achieve peak productivity, economies of scale, and cost advantage for low skill work to get global volumes. For high skill work, India needs to invest in R&D, innovation, training and upgradation .
Emphasis on inhouse R&D
India needs to spend five times as much on R&D as it does now. China spends 1.5% of GDP, compared to India’s 0.5%. To lead the development of novel products and technology for the world, a focus on R&D is necessary. This would allow access to the market for import substitution, which will result in GVA growth of $55 to $60 billion in addition to $75 billion in export growth.
Focus on Technology vibrant sector
India should concentrate on the thriving technology industry which includes IT hardware, electrical machinery, electronic hardware, aerospace, etc.
Final Thoughts
India has the opportunity to enhance its industrial competitiveness and establish itself as a top supplier for both domestic markets and global markets. With government backing, bringing together manufacturers and focusing on R&D and technology vibrant sector has enormous promise for increasing productivity, acquiring superior know-how, and producing higher returns on capital.
(The author is Mr. Vikas Manral, Co-founder & CMO, SolutionBuggy and the views expressed in this article are his own)
