REVIVAL OF MANUFACTURING SECTOR – ECONOMY

REVIVAL OF MANUFACTURING SECTOR – ECONOMY

NEWS: India’s journey to becoming a global manufacturing hub has gained momentum with the government’s strategic policy initiatives, particularly the Production Linked Incentive (PLI) scheme.

 

WHAT’S IN THE NEWS?

Introduction to India’s Manufacturing Growth

  • Policy Initiatives Driving Growth:
    India is progressing toward becoming a global manufacturing hub, largely propelled by strategic government policies like the Production Linked Incentive (PLI) scheme.
  • Impact of PLI Scheme:
    The PLI scheme has transformed manufacturing sectors such as mobile manufacturing, electronics, pharmaceuticals, automobiles, and textiles by fostering enhanced production, increased exports, and job creation.
  • Link to ASI Findings:
    The Annual Survey of Industries (ASI) 2022-23 data indicates a strong correlation between the PLI scheme and sectoral performance. Manufacturing output grew by 21.5%, and Gross Value Added (GVA) rose by 7.3%, showcasing the scheme's effectiveness.

Performance Highlights of the Manufacturing Sector

  • Sectors Benefiting the Most:
    Key industries like basic metals, coke and refined petroleum products, food products, chemicals, and motor vehicles contributed 58% to total manufacturing output, achieving a combined growth rate of 24.5% in 2022-23.
  • Post-Pandemic Recovery:
    Despite a high base in 2021-22 due to the post-COVID rebound, the manufacturing sector maintained double-digit growth, demonstrating resilience and steady recovery from past disruptions.

Addressing Sectoral Challenges

  • Divergence Between Output and GVA Growth:
    While manufacturing output grew by 21.5%, GVA growth was restricted to 7.3% due to a 24.4% rise in input prices, driven by the high costs of imported raw materials.
  • Proposed Tariff Simplification:
    Streamlining import tariffs into a three-tier system (0-2.5% for raw materials, 2.5-5% for intermediates, and 5-7.5% for finished goods) can reduce costs, improve competitiveness, and enhance integration into global value chains.

Regional and Sectoral Imbalances

  • Concentration of Manufacturing Activity:
    States like Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh account for 54% of total manufacturing GVA and 55% of manufacturing employment, indicating regional disparities.
  • Need for Equitable Growth:
    Addressing this imbalance requires fundamental reforms in land, labour, and power markets, improving infrastructure, and fostering investments across other states to unlock the sector's full potential.

Expanding the Scope of the PLI Scheme

  • Beyond Traditional Industries:
    The PLI scheme should extend to labour-intensive sectors like apparel, leather, footwear, and furniture and sunrise industries such as aerospace, space technology, and Maintenance, Repair, and Overhaul (MRO).
  • Reducing Import Dependency:
    Incentivizing domestic production in sectors with high import dependency, such as capital goods, can reduce exposure to global demand fluctuations and supply chain disruptions.
  • Promoting Green Manufacturing:
    Supporting research and development in advanced manufacturing technologies and eco-friendly practices will further enhance India’s manufacturing competitiveness.

 

Focusing on MSMEs and Women in Manufacturing

  • Empowering MSMEs:
    Micro, Small, and Medium Enterprises (MSMEs) contribute 45% to India’s manufacturing GDP and employ 60 million people. Tailoring PLI incentives to their needs, such as lowering capital investment thresholds and reducing production targets, can help them scale and integrate effectively into value chains.
  • Enhancing Women’s Participation:
    Increasing female workforce participation in manufacturing can significantly boost output. According to the World Bank, India’s manufacturing output could rise by 9% if more women join the workforce.
    • Developing supportive infrastructure such as hostels, dormitories, and childcare facilities near factories can encourage women’s participation and foster inclusive growth.

Policy Recommendations for Sustained Growth

  • Reforms to Enhance Competitiveness:
    Addressing ease of doing business and reducing the cost of doing business is essential to sustain manufacturing growth.
  • Infrastructure Development:
    Investing in physical and digital infrastructure will create a conducive environment for manufacturing expansion.
  • Capitalizing on Policy Momentum:
    Seizing current opportunities through policy measures can consolidate gains and position India as a global manufacturing powerhouse.

Manufacturing’s Role in India’s Economic Transformation

  • Sector’s Contribution to GVA:
    With sustained efforts, the manufacturing sector’s share in GVA can rise from the current 17% to over 25% by 2030-31 and 27% by 2047-48, as per estimates by the Confederation of Indian Industry (CII).
  • Catalyst for Economic Development:
    Manufacturing is pivotal for India’s transition to a developed economy by 2047, aligning with long-term growth objectives.

Conclusion

India’s manufacturing sector, supported by transformative initiatives like the PLI scheme, is on the cusp of becoming a global powerhouse. However, realizing this vision requires:

  • Expanding PLI incentives to diverse sectors.
  • Tackling regional and input cost imbalances.
  • Empowering MSMEs and increasing women’s workforce participation.
  • Enhancing infrastructure and implementing structural reforms.

Sustained policy focus and innovation will ensure manufacturing plays a critical role in India's journey to economic transformation.

Source: https://www.thehindu.com/opinion/op-ed/building-on-the-revival-of-the-manufacturing-sector/article68955712.ece#:~:text=Recovery%20of%20the%20manufacturing%20sector&text=The%20results%20of%20the%20ASI,%2D19%20pandemic%2Dinduced%20slump.