Manufacturing Sector of India

The incentive outcome for Indian manufacturing sector

There are mainly three sectors in any economy-Primary (agriculture), Secondary (manufacturing) and Tertiary (service). In a less developed country, its agriculture contributes the most to its economy; in a developing country, its manufacturing sector contributes the most, and in a developed country, its service sector contributes the most. But India is an exception to the world economy because it jumps directly from the primary to the tertiary sector as its manufacturing sector does not develop at a good pace.

India has the 5th largest GDP in the world, but if we talk about its per capita income, it is only 230 dollars (approx.). The per capita income of countries like the USA and Sweden have more than 50000 $. The per capita income of China is 8000-9000 $. This shows how far an average Indian is from an average American and Chinese. So India has to grow rapidly for several decades to achieve the average level of lifestyle to reach anywhere close to the developed world. For this, we continuously need to increase our manufacturing sector. If we see the past 2-3 decades, the manufacturing sector did not develop very less if we compare it with our service sector. Today the Indian service sector contributes 54.13% while the manufacturing sector contributes 18.32 %, followed by agriculture which contributes 14.39% to our economy. We have a large domestic market that needs products to consume, and such a lower contribution of manufacturing is not a healthy sign; this makes us import goods to fulfill our domestic needs and is not good for our economy. Our population is 17% of the world, but our poor share in global trade is only 1.5-2 %, especially on goods, reflecting our acute lack of competitiveness.

China is our largest trading partner and our largest importer. India has a trade deficit of 73 billion $. There is a perception that we import only finished goods from China, but we import a lot of intermediate goods from China, and stopping that trade will affect our ability to produce finished goods. Some sectors are import dependent, such as automobile, pharmaceutical, electronic, telecommunication, etc. There is a sentiment toward boycotting Chinese products. This move towards boycotting these goods could be counterproductive. It will impact the overall competitiveness to export. But this means we should not always depend on China or become a slave.  

The hurdles we face in the manufacturing sector are –

  • We don’t have adequate and world-class quality infrastructure 
  • Lack of reliable electricity
  • We don’t have access to world-class technology 
  • Lack of skilled workforce
  • Complex labor law 
  • High cost of land and electricity
  • Logistic delay

The world looks at India as a future manufacturing hub of the world. The world feels India has all the possible potential to fulfill the needs of the world. So we have to reduce the cost of manufacturing to be a better alternative to China. We need to be more sector-specific and focus on factors of production such as land, labor, raw material, capital, etc.

We have low-cost labor among the lowest worldwide(avg-1.50$ per hour). We have the advantage of a demographic dividend as we have an abundant labor force, and 67% of the total population is in the working age group (15-64). We are working on developing our infrastructure, and our government has introduced some projects such as Mumbai Delhi Expressway, Bharatmala project, Mumbai trans Harbor link, Inland waterways, etc. India has a free trade agreement (FTA) with many countries that lower tariffs so that our product costs lower prices in the market, and we would be more competitive and export more. Our domestic market is growing so we need products to fulfill our domestic demands. The many MNCs looking for a “China plus 1” policy avoid investing only in China and diversify their manufacturing or assembling units in other countries, so India has a great opportunity to grab it.

Some recent good news are:

  • Apple will start manufacturing iPhone 14 with its partner Foxconn’s factory near Chennai.
  • Vedanta, Foxconn’s to set up a semiconductor manufacturing unit in Gujrat 
  • If we only assemble in India for the world through Make In India, it can create four crore jobs by 2025 and 8 crores by 2030 ( Economic Survey 2020)

The manufacturing sector provides many jobs at all levels. It is important as an employment generator. If we compare it with other sectors, it has the highest ability to create jobs because it requires the most workforce. It distributes wealth equitably among the workforce, hence is a key factor to rise people above the poverty line.

-Bipul Kumar

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