Manufacturing Sector in India

Topics: Economics, Economic growth, Industry Pages: 7 (1918 words) Published: December 26, 2012

Manufacturing key to growth above 6.5%, says RBI
India needs to focus more on manufacturing in order to achieve GDP growth more than 6.5 %, Reserve Bank of India has said. The manufacturing sector has the scope for creating jobs for millions of people who leave other sectors such as agriculture, RBI Governor D Subbarao said in his keynote address here at Centre for Economic and Social Studies yesterday. His remarks assume significance in the backdrop of dwindling contribution of manufacturing sector to the GDP. India's economic growth rate slipped to 5.3 % in the fourth quarter of 2011-12, the lowest in nearly nine years, following poor performance of the manufacturing and farm sectors. During the quarter ending March 31, growth in the manufacturing sector contracted to 0.3 %, from 7.3 % in the corresponding period of 2010-11.

"Every unit of manufacturing needs more credit than for every unit of services output to GDP. And we need to be focussing on manufacturing because you cannot accelerate growth from the current level of 6.5 %...without focus on manufacturing," Subbarao said. "You cannot provide jobs to hundreds of millions of people who are released by agriculture sector and other sector unless you focus on manufacturing," he added. Talking about the credit demand in future, Subbarao said India as a structurally transforming economy needs more credit as the focus is shifting towards manufacturing. Analysis:

The problem in India lies in its structural transformation from agriculture to directly in service and not following the normal structural model of development which other emerging markets like china followed (exhibit-13) . The workforce shifted from agriculture to services. The manufacturing sector is widely regarded as the transformational sector, for agricultural labourers moving from low skilled to more value added jobs. This is because, historically, economic development has followed a pattern of pulling people out of agriculture, moving them into non-farm activities such as manufacturing and services. The importance of the role of manufacturing (industrial sector) in absorbing surplus labour from agriculture sector has also been proved by the development experience of many developed countries and lately in various South East Asian countries. This makes manufacturing extremely important for India, where agriculture constitutes a minor share of GDP, but accounts for a disproportionately large share in employment.

In recent years though India has not shown a robust growth in manufacturing sector in fact it just employs 12% the workforce and also contributes a meagre value of 16% to India’s GDP. But this sector has a multiplier effect for job creation in the services sector. According to National Manufacturing Policy 2011, every job created in the manufacturing sector creates two -three additional jobs in related activities.

The major factors that had been hindering in the development of Indian manufacturing sector has been

Poor infrastructure
Unreliable power supply
Land acquisition and labour laws

Various protests among farmers and workers encourages more capital intensive industries rather than labour intensive which affects on the employment level of the country. Even china has gained a lot by being manufacturing oriented by pulling out the economy from poverty and massive trade surplus with the help of manufacturing export. India needs to create 220 million jobs in the next 15 years and this is only possible by implementing the National Manufacturing Policy.

If we look at the baseline, the growth of manufacturing over 30-40 years had increased every decade but since 2000, our annual GDP growth rate had been 7-8 % on an average, making us the second fastest growing country in the world. Only China was growing faster than us. The problem lies in the fact that when India started...
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