For a manufacturing revolution..............
With two decades of economic reform behind us, we are yet to see an upsurge in the manufacturing sector. The paradigm of double-digit growth continues to elude it. The process of unshackling manufacturing from controls and regulations had essentially started with the Seventh Plan (1985-90), that had signalled a major shift in our approach to industrial development. In the new environment that ensued, the moribund manufacturing sector was sought to be resuscitated, and poised for growth, modernisation and diversification.
With two decades of economic reform behind us, we are yet to see an upsurge in the manufacturing sector. The paradigm of double-digit growth continues to elude it. The process of unshackling manufacturing from controls and regulations had essentially started with the Seventh Plan (1985-90), that had signalled a major shift in our approach to industrial development. In the new environment that ensued, the moribund manufacturing sector was sought to be resuscitated, and poised for growth, modernisation and diversification.
The effect was immediate. Average annual growth in India's manufacturing sector, which had declined from 8 per cent during 1950-65 to 4.6 per cent during 1965-80, rose to 6.8 per cent in 1980-85 and further to 7.6 per cent during 1985-90.
Then, starting from 1991, we pursued a policy of liberalisation, globalisation and macro-economic (mainly fiscal) re-structuring, exposing our manufacturing sector to external competition. Following that, the sector has also undergone some significant qualitative and structural changes, in favour of capital and technology-intensive industries such as automobiles, pharmaceuticals, chemicals and petrochemicals, electrical goods, and electronics.
The small-scale sector too had re-organised and responded positively as supporting industries. Liberalisation of trade and industrial policies has indeed enabled the emergence of a class of globally competitive entrepreneurs in almost every sector.
LONG WAY TO GO
Yet, we are far from realising the potential that can make us a global manufacturing hub, alongside China. This sector has failed to emerge as the prime mover of a highly populous economy. Its share in GDP is still only 15 per cent, compared with 45 per cent in China. What is more, the contribution of manufacturing in total organised sector employment is only 8 per cent.
While presenting the Budget proposals for 2011-12, the Finance Minister had underlined the need for increasing the contribution of manufacturing activities in the GDP to 25 per cent. He had announced that the government would come with a suitable manufacturing policy.
Earlier, the UPA-I government had set up a high-powered National manufacturing Competitiveness Council, with the objective of achieving 15 per cent annual growth in this sector. This goal, however, has remained a pipedream so far. Now that we are talking of increasing the share of manufacturing in our GDP to 25 per cent, a few points may be mentioned. First, we need to appreciate that increasing the share from current 15 per cent to 25 per cent is not a simple job that can be achieved with a mere policy for this sector. This means a significant structural transformation for the economy.
Focus on increasing the share of manufacturing has to keep in mind the imperative of building and strengthening inter-sectoral linkages. Among others, any strategy to ensure higher share of manufacturing must have strong focus on processing of, and value addition over, products from primary sector. To be specific, it must take the interest of agriculture into account and manufacturing sector should absorb surplus labour from rural areas.
Second, any talk of increasing the share of manufacturing is essentially about increasing the growth in this sector. If we are talking of increasing share from 15 per cent to 25 per cent, what is the growth rate we need for this sector? Also, how are we going to achieve that?
If we look at the period 2002-03 to 2007-08, which is the period of best growth so far since 2000-01, average annual growth in manufacturing GDP at 8.9 per cent was same as that of GDP growth, and average annual share of manufacturing in GDP was 15.8 per cent. From this, it is obvious that for the manufacturing sector to account for 25 per cent of GDP, this sector would have to achieve a very high rate of growth, an annual average of around 15 per cent. Incidentally, in the last fiscal year, industrial growth has come down to 7.8 per cent as against 10.5 per cent in 2009-10.
OBSTACLES TO GROWTH
For long, we have been talking about this, but except occasionally, we have never achieved double-digit growth. What we see instead is growing obstacles to manufacturing growth. Worse still, we seem to have a tendency to let manufacturing growth suffer in the face of macroeconomic crises, such as inflation.
Obstacles of the past such as inadequate infrastructure, credit constraints, low labour productivity and high overhead costs, remain unmitigated, and now we have at least four new obstacles of insurmountable dimensions. These are: Land, Environment, Forest and Tribals (LEFT). Industry is additionally faced with these four LEFT issues. The intensity of public protest around these issues has been increasing and raising serious doubts as to the future prospects for large industrial projects in the country.
Given the growing intensity of public intervention in matters relating to LEFT and lack of policy clarity, there is apparently no immediate way out of the impasse that we find ourselves in today. At the same time, the imperative of higher double-digit manufacturing growth cannot be postponed for long.
ANOTHER MODEL
In this context, we may have to think of a different model of manufacturing growth. The new model of growth has to be pro-people in terms of employment, environment and better living standards. It requires that we develop a plethora of manufacturing centres all over the country, maybe one centre for each district, with a thrust on maximum utilisation of locally available resources including land, raw materials and people.
Obviously, we would need to redirect our focus on developing a stream of competitive small and medium scale units and encouraging development of local entrepreneurship in tune with the imperative of competitiveness, efficiency and globalisation. Liberalisation at the grassroots levels of administration, under the active guidance of the State governments, would go along way in ushering a manufacturing revolution in the country.
We may have to think of a different growth model in view of the public protests over land, the environment and tribals. We could develop manufacturing centres all over the country, with a thrust on the use of local resources.
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