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Making India a Manufacturing Hub

Making India a Manufacturing Hub

Context

In a virtual interaction with Ministers Prime Minister discussed about China and the manufacturing challenges faced by India. To put the economy on a growth trajectory, they discussed the ideas which can transform India into a global manufacturing hub.

Background:

  • Earlier, Prime Minister gave a mantra ‘vocal for local’ during his address to the nation. The idea was to promote local brands and goods. The brands which are global today were once local.
  • More recently, the clamour has become louder to make India a global manufacturing hub, especially considering the China situation.
  • In the 1980s, China began as a producer of low-end products and in 2010; it became the largest manufacturer in the world.

Summary of the Debate

Status of Manufacturing in India: An Overview

  • Manufacturers are facing hardships in India due to the tough labour laws and expensive credit. It is one of the reason traders find importing from China much lucrative.
  • India sees a jump in the sectors like Electronics, mobile sector, steel production, aluminium, cement etc. But in many areas, its condition is very poor.
  • Major boost required in MSME sector where the major market lies.
  • Indian manufacturers lost lots of their space to that very import which were cheaper, better looking and fast-rolling.
  • The reason behind this is the complete lack of research in the sector. It lacks market feedback, modification of the goods, better technology etc, which are important to boost the manufacturing which would be competitive at the international level.

Challenges to Indian Manufacturing Sector

  • There is a lack of innovation in the sector in the field of the production process, planning, machine capability etc.
  • It lacks good Research and Development Facilities, where academia and industry could make partnership to boost the innovative and cheap products that would make products more qualitative and competitive.
  • There are lots of compliances in India. An average Indian company has to go through near around 2500-3000 instances of compliances every year. In countries like Thailand and Vietnam the number is around 500.
  • India still has some outdated and archaic laws on its book.
  • There is a lack of Infrastructure and basic facilities. Roads or transportation system, basic amenities like water requirements and power supply is not adequate and up to the mark.

What needs to be done for this sector?

  • India’s success in Manufacturing: India has the largest number of Deming prizes winners, which is the highest quality award in the manufacturing field. It means India has the potential enough for achieving growth in this sector.
  • India’s success in the car and bike manufacturing attract global powers. India became virtually small car hub in the world.
  • India needs to recognize that its strength lies in labour, cost, productivity and skills.
  • There is a need to create large numbers of mega-clusters, preferably near the ports, which leverages on labour-intensive manufacturing. It helps in making goods cheap and reduces transportation time.
  • There is a need to work on Policy matters and on their implementation. The government should have trust on the manufacturers and manufacturers should know the rules and regulation.
    • There is a need of credibility and consistency in policymaking.
  • Work on market access: World is not following multilateral policies under the WTO but trade block. Free trade agreements like India-European union FTA would go long way in promoting access for Indian products.
  • Spend more on R & D: R & D is the responsibility of all the stakeholders. Inda’s R&D spend in the industry as a percentage of GDP is 0.7 percent. A country like Vietnam has at least 2 per cent for this. We need to increase this, competitiveness and quality cannot happen without R&D.
  • For Promoting Export: We need to promote exports too. Without being successful in export, one cannot become successful in manufacturing. India needs to work on its Exchange rate policy because if our exchange rate is strong then imports look cheaper than the domestic. We need this 3 way combination for this:
    • Diplomatic mission abroad: to reach out to investors in those countries who are interested in setting up R&D facilities in India.
    • Industry ministry and its inter-ministerial group: it would lead the mission.
    • Industry chambers and Association: It will connect the small and medium enterprises and companies to this effort

FACTS

  • With GVA of Rs. 50.43 lakh crore, the Industry sector contributes 29.73%. While, Agriculture and allied sector shares 15.87%.
  • Gross Value Added (GVA) at current prices for the Services sector is estimated at 92.26 lakh crore INR in 2018-19. The services sector accounts for 54.40% of total India's GVA of 169.61 lakh crore Indian rupees.
  • At 2011-12 prices, the composition of Agriculture & allied, Industry, and Services sector are 14.39%, 31.46%, and 54.15%, respectively.
  • Share of primary (comprising agriculture, forestry, fishing and mining & quarrying), secondary (comprising manufacturing, electricity, gas, water supply & other utility services, and construction) and tertiary (services) sectors have been estimated as 18.57 per cent, 27.03 per cent and 54.40 per cent.
  • Contribution of Agriculture sector in the Indian economy is much higher than world's average (6.4%). Contribution of Industry and Services sector is lower than world's average 30% for Industry sector and 63% for Services sector.

Way Forward:

  • Intentions should be focused and clear. Need to focus on strength and learn from the success stories.
  • Scrap the archaic laws and compliances and bring reforms in labour laws.
  • Need to make an ecosystem with all stakeholders coming on board and taking this forward on a mission mode.

Main points made by Guests

1. Subhrakant Panda, Chair, Manufacturing Committee, FICC:

  • There are lots of compliances and outdated laws in India.
  • Bring reforms in labour laws.

2. Ajit Ranade, Chief Economist, Aditya Birla Group: 

  • There is a need to create large numbers of mega-clusters, preferably near the ports.
  • There is a need to work on Policy matters and on their implementation.

3. Aruna Sharma, Former Secretary, Ministry of Steel :

  • Manufacturers are facing hardships in India due to the tough labour laws and expensive credit. It is one of the reason traders find importing from China much lucrative.
  • India sees a jump in the sectors like Electronics, mobile sector, steel production, aluminium, cement etc. But in many areas, its condition is very poor.
  • Major boost required in MSME sector where the major market lies.

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