Reviving India’s Manufacturing Sector

GS3 – Indian Economy – Industry

Context:
India’s manufacturing sector has shown robust growth, largely driven by the Production Linked Incentive (PLI) scheme, positioning the country as a global manufacturing hub.

Significance of the Manufacturing Sector

1. Economic Contribution:
   • Contributes 17% of Gross Value Added (GVA), with the potential to rise to 27% by 2047.
2. Employment Generation:
   • MSMEs employ approximately 60 million people, serving as a major employment generator.
3. Global Competitiveness:
   • Enhances India’s integration into global value chains, essential for establishing a manufacturing hub.

Key Achievements

1. Sector Growth:
   • Manufacturing output grew by 21.5%, and GVA increased by 7.3% in 2022-23.
2. PLI Scheme Impact:
   • Boosted production, exports, and employment, particularly in electronics, pharmaceuticals, and textiles.
3. Sectoral Contributions:
   • Basic metals, chemicals, and food products contributed 58% of manufacturing output with a growth rate of 24.5%.
4. Resilience:
   • Maintained growth post-COVID disruptions, showcasing sectoral resilience.

Constitutional Provisions Supporting Manufacturing

1. Article 39: Ensures equitable resource distribution to prevent wealth concentration.
2. Article 43: Advocates for living wages and better working conditions for workers.
3. Article 48A: Mandates sustainable practices to protect the environment.
4. Concurrent List: Allows both Union and State governments to legislate on industries and labour.

Government Policies Supporting Manufacturing

1. PLI Scheme:
   • Encourages production, exports, and job creation across strategic sectors.
2. Ease of Doing Business:
   • Streamlined compliance and tax regimes to attract investment.
3. Make in India Initiative:
   • Focused on boosting domestic manufacturing and foreign investment.

Challenges

1. High Input Costs:
   • Input prices rose by 24.4% in 2022-23, affecting profitability.
2. Import Dependency:
   • Heavy reliance on imported raw materials increases vulnerability.
3. Regional Imbalances:
   • Four states (Maharashtra, Gujarat, Tamil Nadu, Uttar Pradesh) dominate manufacturing, limiting industrial spread.
4. MSME Constraints:
   • MSMEs face challenges scaling up due to high capital and operational costs.
5. Low Female Workforce Participation (FWP):
   • Women’s contribution remains limited due to systemic barriers.

Measures to Address Challenges

Inclusive Growth and Workforce Participation

• Women’s Workforce Participation:
  • World Bank Estimate: Increasing female FWP could boost output by 9%.
  • Action: Provide childcare facilities, hostels near factories, and tax incentives for industries with higher female employment.
• MSME Support:
  • Reduce capital investment thresholds under PLI and provide financial aid to integrate MSMEs into global supply chains.

Reducing Import Dependency

• Boost Domestic Production:
  • Develop local industries for capital goods and raw materials.
• Simplified Tariff Structure:
  • Rationalize tariffs:
    • Raw Materials: 0-2.5%
    • Intermediates: 2.5-5%
    • Finished Goods: 5-7.5%

Infrastructure Development

• Establish industrial clusters and Special Economic Zones (SEZs) in underdeveloped regions to promote balanced growth.
• Improve logistics, transportation, and energy access.

Sustainability and Green Manufacturing

• Link PLI incentives to eco-friendly manufacturing.
• Align with the National Action Plan on Climate Change (NAPCC) to support clean energy adoption.

Technological Advancements

• Invest in Industry 4.0 technologies like AI, robotics, and automation to enhance productivity and competitiveness.

Way Forward

A holistic approach to addressing challenges and leveraging opportunities can sustain the growth momentum of India’s manufacturing sector. Policies should focus on inclusivity, sustainability, infrastructure, and technology to ensure long-term economic growth and global competitiveness.