Missing links in the manufacturing sector revival

While the agriculture and services sectors have come a long way since independence, India's manufacturing sector is lagging behind on several counts. No doubt, the recently announced Atmanirbhar Bharat Abhiyan would give much needed external push to this sector, it must be complemented with three other initiatives.

New Delhi:For the sake of analysis, if we divide the Indian economy into three sectors – agriculture, manufacturing and services, manufacturing is the only sector that has grown much below its potential.

While agriculture has seen a historic transition from the ship-to-mouth existence to exporting around Rs 2.6 lakh crore worth of commodities per annum to over 100 countries, the services sector has become the backbone of our economy with over Rs 16 lakh crore worth of exports.

Whereas, the manufacturing sector is still a work in progress as gauged from 10 per cent share in the overall gross domestic product (GDP) at the time of independence to 15-16 per since 1980.

This is at a time when our Asian peers like China, South Korea, Japan, etc anchored their respective economies in the manufacturing sector and reaped rich dividends.

No doubt, successive governments revised industrial policies in 1948, 1956, 1977, 1980 and most importantly in 1991 to make the manufacturing sector competitive, not much progress was seen on the ground.

In effect, we were not only losing out on opportunities that the liberal global order was offering but also started importing even household items like soap-box, toys and incense sticks.

Atmanirbhar Bharat Abhiyan

Sensing an opportunity in the global pandemic triggered by Covid-19, the Centre has launched the Atmanirbhar Bharat Abhiyan (ABA) to make India an attractive destination for multinational corporations that are trying to de-link their supply chains from China.

In fact, the ABA is an extension of the ‘Make In India’ campaign launched in 2014 and a series of industry-friendly announcements made by the Finance Minister Nirmala Sitharaman starting from the drastic cut in corporate tax in September 2019.

The primary objective of these measures is to increase the share of the manufacturing sector in the overall GDP to 25 per cent and create 10 crore new job opportunities by 2022.

No doubt, these are welcome steps and give the much needed push to the ailing manufacturing sector, there are three important missing links that the government must address on a priority basis.

1. Effective Centre-State coordination

As the Constitution says, India is a union of States. While the Centre has the powers, responsibilities and expertise in areas of macro-economic policy, foreign direct investment, taxation, branding, etc the key factors of production like land, labour, water and electricity are under the States' purview. More importantly, law and order, which is a critical 'ease of doing business' factor, is a State subject.

The distribution of key subjects between the Centre and States warrants better coordination; otherwise, even the good policies won’t translate into factories on the ground.

The varying degrees of industrial development between the States with progressive and proactive industrial policies and good governance like Gujarat, Karnataka, Tamil Nadu, Telangana, etc and the States with governance issues like Uttar Pradesh, Bihar, West Bengal, etc prove this point.

2. Skilled workforce

To have a thriving manufacturing sector, we need human resources with the right skills.

In India, the real problem in the job market is not lack of jobs; rather, it is the disconnect between the curriculum and industry requirements.

As per an estimate, over 15 lakh engineering graduates enter the job market every year and reports suggest that up to 80 per cent of these graduates remain unemployed primarily on account of the skill gap.

Hence, it is a matter of urgency for the policymakers to address this issue or else the much sought after demographic dividends will turn out to be a demographic disaster.

3. Needs a holistic approach

The lines between the manufacturing and services sectors are getting blurred day by day.

Technologies like the Internet of Things (IoT), artificial intelligence, 3-D printing, big data, etc are creating new opportunities in the hardware sector which were unimaginable a decade ago.

To exploit this symbiotic relationship between the manufacturing and services sector for India's advantage, the government, industry and academia must work together to deliver a policy road map.

(Written by Shravn Nune. Views are personal.)