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“The task before me today is very challenging because we need to revive growth, particularly in manufacturing and infrastructure, to raise adequate resources for our development needs,” said Arun Jaitley, Union Finance Minister, in his 2014-15 Budget speech, which was the first Budget of the Modi-led NDA Government.
“The policy of the NDA Government is to promote FDI selectively in sectors where it helps the larger interest of the Indian economy. FDI in several sectors is an additional resource which helps in promoting domestic manufacturing and job creation. India today needs a boost for job creation. Our manufacturing sector, in particular, needs a push for job creation.”
It is these prescient words in July 2014 from the then Finance Minister that set the stage for the country’s bid to transform into a a global manufacturing hub. But the 10 years of NDA rule have not led to material increase in manufacturing output, with the Centre mainly focusing on services-led growth.
Job creation
The actual turnaround has happened in the second term of NDA. The reasons why the Indian government had to press the accelerator on enhancing the manufacturing play is not far to see — it had to make an earnest effort to create jobs, which was the biggest problem before it; it wanted to offset trade imbalance and also in later years face important issues like looking at security concerns and stability of supply chains during Covid-19.
With 17 per cent of the nation’s GDP and over 57.3 million workers (2022-23), the manufacturing sector now plays a significant role in the economy. Through the implementation of different programmes and policies, the Indian government hopes to have 25 per cent of the economy’s output come from manufacturing by 2025.
But the policies aimed at promoting indigenous production and attracting investments — Make in India campaign and the Production Linked Incentive (PLI) scheme -- have not taken off yet. The next government needs to examine why and address the impediments. .
One of the notable outcomes of the Make in India campaign has been the increase in foreign direct investment (FDI) inflows into the manufacturing sector. PLI and Make in India or Atmanirbhar Bharat programme were launched with the twin objectives of reducing the pressure on imports, and this has already worked wonders in defence.
The share of manufacturing in gross value added (GVA) improved from 17.2 per cent in 2014 to 18.4 per cent in 2018. Of course, subsequent years saw a downturn due to the financial sector crisis and the pandemic. However, for 2023-24, the share of manufacturing is likely to come back closer to 18 per cent.
India, especially post Covid-19, is seeing an acceleration in its manufacturing journey. The government’s focus on infrastructure development — Bharatmala (highways); Sagarmala (ports), Udan and thrust on laying new Railway tracks — has helped in faster movement of goods across the country. The game changing initiative of introduction of GST (albeit a complex system) in 2017 also spurred manufacturing as the cascading effect of taxation got removed.
Increasingly, India is ticking all the boxes as regards the factors that global multinationals look for in a country before they up their sourcing game — right cost competitiveness, labour availability, port access and supply agility.
India had, in August 2021, outlined a plan to reach the goal of $1 trillion in manufactured goods exports. In July 2021, the government launched six technology innovation platforms to develop technologies and thereby boost manufacturing to compete globally.
Steady strides
Sanjeev Agrawal, President, PHDCCI, said: “All these reforms have built steady strides for futuristic growth of manufacturing as the country is able to build manufacturing capacities such as mobile production, where India stands as the world’s second largest producer. Merchandise exports are at an all-time high at $450 billion for 2022-23, which indicates great prospects for the manufacturing sector.”
Agarwal said the growth of the manufacturing sector is in the steady zone. However, global headwinds like US-China trade war, the Covid pandemic, geopolitical developments, geo-economic fragmentation, and the recent tussles between other countries, had some impact on the trajectory of growth, procurement of raw materials and issues related to transportation and logistics.
‘Facing dualism’
Madan Sabnavis, Chief Economist, Bank of Baroda, however had a slightly different take on the growth in manufacturing and noted that it was not on a fast lane as anticipated. “Manufacturing sector is facing dualism. One part is doing well because of robust Central government and State government spending on capex. Manufacturing related to infrastructure has been doing well. However, manufacturing related to consumer has not been doing that well because of the volatile nature of demand.”
He said PLI is a very good policy, but nobody has taken advantage of it because of demand. “The problem we have in India is demand and that has come in the way of growth of manufacturing sector,” Sabnavis said.
Sabnavis highlighted that unemployment is an issue although employment has been generated in manufacturing sector.
In conclusion, India’s manufacturing sector has faced significant challenges and constraints over the past decade, leading to a slow growth trajectory.
To sustain and accelerate this momentum, concerted efforts are required to address infrastructure deficiencies, streamline regulations, enhance skill development, promote innovation, and integrate India’s manufacturing sector with global value chains.
By addressing these challenges and leveraging its inherent strengths, India can realise its vision of becoming a global manufacturing powerhouse in the years to come.
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