Growth push. Manufacturing’s vital role in tapping India’s young population

The government is set to disburse more than ₹2 lakh crore in five years to 13 sectors under the Production Linked Incentive (PLI) schemes.

Despite the absence of a proper assessment of the scheme, it is being extended to more sectors.

While India, with its huge market and young talent potential, can indeed become a favoured destination for trade and investment, competitiveness can become its strategic differentiator, changing the course of its economy.

Earlier a National Manufacturing Competitiveness Council (NMCC) was set up but did not make an impact. It is high time India considered the law and an autonomous institution like the National Competitiveness Commission (NCC), which can persuade all government organisations to pursue competitiveness as a law. India can take a cue from the America COMPETES Act of 2022, which covers all policies aimed at bolstering its global competitiveness.

The implementation of the PLI scheme is cumbersome.

There is a project management agency (PMA) established in each Ministry, which recommends to the empowered committee (EC) the subsidies to be given to the identified firms. The EC consists of secretaries from various departments and the CEO of NITI Aayog.

Tedious process

A subsidy of 8 per cent to 18 per cent is given each year on the incremental sales of a firm compared to the base year sales of 2019-20.

Moreover, a technical committee has been constituted to give recommendations on technical matters. Finally, the disbursements cannot be rolled out without the Union Cabinet’s approval. The approval process has many conditions. Firms from different industries have different minimum incremental sales requirements and minimum incremental and cumulative investment requirements. There is also a cap on total disbursements in each sub-scheme.

For schemes like PLI, administrative structures get burdened and management deteriorates from efficient to uninterested bureaucratic setup.

Young India

India’s manufacturing sector has underperformed when compared to other nations, with a meagre share of 16.3 per cent of the GDP.

This is much less than that of China and Korea, whose manufacturing accounts for 29 per cent of the GDP and 27 per cent in Thailand. In India, 65 per cent of the population is below the age of 35 and the manufacturing sector will play a key role in tapping the potential of this demographic dividend.

Studies have shown that every job created in the manufacturing sector has a multiplier effect in creating 2 to 3 jobs in the service sector. Currently, this sector accounts for only 12 per cent of the total employment of the workforce. High domestic demand, increasing middle class and young population and high returns make India attractive for manufacturers.

However, it is estimated that only 4.7 per cent of India’s workforce is formally skilled. This is in contrast with the US (52 per cent ), UK (68 per cent ), Germany (75 per cent), Japan (80 per cent ), South Korea (96 per cent ) and China (24 per cent ). Skilling the workforce at the senior secondary school level is the best way to infuse the dropouts into the mainstream of employment . ITI-like training institutions may also improve shop-floor productivity.

For an Aatmanirbhar Bharat, one needs holistic policies that will enhance overall competitiveness. Its success hinges on government reforms that realise the global competitiveness of the manufacturing sector with a holistic approach.

The writer is Vice-Chairman Sonalika and Vice-Chairman of Punjab Economic Policy and Planning Board

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