Topics: Industry, Economy of India, National accounts Pages: 20 (4862 words) Published: February 24, 2015
Introduction: The Indian Manufacturing sector is a classic example of an industry that has had great potential, but one that has been systematically done in by political ineffectiveness, entrepreneurial myopia and sheer ignorance of what it takes to succeed. The objective of the National Manufacturing Policy is to boost the country’s share of industrial production, employment; development of world-class infrastructure and investments in India’s manufacturing space. The Indian manufacturing sector faces a defining moment in its evolutionary path. The global economy is emerging from an extended period of sluggish performance, and growth rates across several major economies are expected to improve. A new government has taken charge in India with an unambiguous mandate for development. It has stated its intention to attract manufacturing sector investment through its Make in India campaign. With costs on the rise in global manufacturing hubs such as China, there is perhaps an unparalleled opportunity for India to step into the breach and capture a significant share of the global manufacturing pie. Yet, the road ahead is not without challenges. India scores poorly on the indices of ease of doing business and corruption, infrastructure is poor in comparison with most other competing economies, and complex regulations related to land acquisition, labour and taxation can increase the cost of manufacturing in India. Eliminating these obstacles is critical to unleashing the potential of India’s manufacturing sector. Business leaders are far more optimistic than they were last year. With a more conducive economic and political environment, more than half expect double-digit growth over the next 12 months, and plan to make significant investments during this period. While nearly half the companies surveyed expect margins to improve, most are not planning to increase workforce, planning instead to invest in new products, capacity additions and market expansion. Concerns related to raw material costs and energy costs persist though domestic demand is less of a worry than last year. Business leaders are looking to the government to rationalise taxes and duties and to invest in infrastructure improvement. Over the last 20 years, Indian manufacturing has by and large grown at the same pace as our overall economy. Our share of global manufacturing has grown from 0.9 to 2.0% during this period while our GDP share has grown from 1.2 to 2.5%. Despite this encouraging growth, however, the relative share of manufacturing in the Indian economy has remained unchanged, dashing hopes of an economy based on manufacturing-led growth. The sector accounted for 15% of GDP in 1993, a rate that remains about the same today. Meanwhile, several Rapidly Developing Economies have increased their share of manufacturing to above 20% of their GDP. In India, the number of jobs in the sector has also remained low over the last 20 years, increasing only by 1.8% per year from 37 and 53 million. This contrasts with the services sector, which has increased by 6.5% per year during the same period, growing its share of India’s labour force from 22 to 31% and accounting for 150 million jobs. Over the last five years, there has been a reversal of sorts to this manufacturing trend, with Indian manufacturing’s share of GDP falling from 2.2 to 2.0% between 2009 and 2013, even as the country’s share of global GDP grew from 2.2 to 2.5% over the same period.

When seen against the performance of India’s peers, the situation is bleaker still. China’s share of global manufacturing increased by more than 6% age points (rising from 17.3 to 24.1 %) during the same period, while the manufacturing share of several other countries (South Korea, Russia, Mexico, Malaysia, Thailand) has also significantly increased. The same bleak picture characterises the Indian export sector- and exports are, the best indicator of success for any manufacturing nation. Here, India’s performance has...

References: www.pwc.in/india-manufacturing-barometer-2014.pdf
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