RURAL MANUFACTURING – ECONOMY
News: The
rise of rural manufacturing
What's in the news?
● Recent
data from the Annual Survey of
Industries for 2019-20, shows that the rural segment is a significant
contributor to the manufacturing sector’s output.
● A
steady stream of investments in rural locations over the last two decades has
ensured that 42% of factories and 62% of
fixed capital is in the rural side.
● In
terms of employment, it accounted for 44%
but had only a 41% share in the total wages of the sector.
Reasons for manufacturing shift from urban-rural
areas:
1. Urban-Rural cost ratios:
● The
Work Bank highlighted the shift of manufacturing out of urban areas in recent
years.
● Their
findings suggested that this trend was brought on by increasing urban-rural
cost ratios.
2. Lower expenditure:
● Numerous
factors have been identified in studies as contributing to rural
manufacturing's relatively consistent growth and persistence.
● Because
wages, property prices, and land costs
are all lower in rural locations than they are in most metro areas, rural
areas have historically attracted more manufacturing companies.
3. Limited floor space in Urban areas:
● The
limited supply of plant floorspace.
● These
space limitations become more severe as areas get more urbanized and populated.
● Contrary
to rural areas, manufacturing simply cannot be expanded in cities.
4. Lower operating costs:
● Cities
tend to have significantly greater operating costs for many businesses than do
rural locations, which has an unavoidable impact on the firm's profitability
and competitiveness.
5. Capital restructuring:
● Large
corporations willfully move production away from urban areas in order to
benefit from the availability of less
expensive, less skilled, and less unionized rural labor.
● Moving
certain businesses from larger cities to smaller areas with lower labor costs
was one strategy to reduce costs.
6. Liberalization:
● Following
trade liberalization, import competition increased for many Indian businesses,
driving them to explore for more affordable production techniques and
locations.
Impact of Manufacturing on Rural India:
1. Fulfilling the need of balanced development:
● Given
the size of the Indian economy and the need for balanced regional development,
the dispersal of manufacturing activities is a welcome sign.
2. Created an opportunity for small scale industries
to survive after liberalization:
● In
the aftermath of trade liberalization, import competition intensified for many
Indian manufacturers, forcing them to look for cheaper methods and locations of
production.
● One
way to cut costs was to move some operations from cities to smaller towns,
where labor costs are cheaper.
3. Source of livelihood diversification in rural area:
● The
shift in manufacturing activities from urban to rural areas has helped maintain
the importance of manufacturing as a source of livelihood diversification in
rural India.
4. Make up for loss of employment:
● This
trend helped to make up for the loss of employment in some traditional rural
industries.
● The
growth of rural manufacturing, by generating new jobs, thus provides an
economic base for the transition out of agriculture.
CHALLENGES:
1. Cost of capital:
● For
businesses operating in rural areas, the cost of capital appears to be higher.
● The
rural segment accounted for only 35% of the total rent paid, while it had 60%
of the total interest payments.
● Manufacturers
who primarily use low-wage labor are simply unable to maintain their
competitive edge over the long term since this cost advantage eventually
disappears.
2. Skill Shortage:
● Due
to the demand for more trained people in manufacturing to compete in the highly
technical global "new economy," there is a "skills
shortage" problem in rural areas.
● Higher
trained workers are in short supply in rural areas, which is a problem for
manufacturers.
WAY FORWARD:
● The provision of greater
education and skill development for rural workers
is the most crucial answer to the issues affecting rural manufacturing.
● Rural areas comparative
advantage of low salaries, higher dependability,
and productivity will be established by a more educated and competent
workforce, hastening the transition from agriculture to higher-earning
livelihoods.