BAIRJSC Research Journal December,2017 Problems of Manufacturing Sector in India Prof. Dr. Asha Agnihotri Yeshwant Mahavidyalaya, Wardha

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1 Problems of Manufacturing Sector in India Prof. Dr. Asha Agnihotri Yeshwant Mahavidyalaya, Wardha Abstract India has started augmentation of its Resources and Policies to become an EconomicPowerhouse in the World. Undoubtedly, India has always had a very mature consumer market as well as well established distribution and commerce framework that extends well beyond its geographical boundaries. It has been realized that there is no product or service that does not have a significant market in India with a growth potential. As on date India has the world s youngest and largest workforce along with the world s greatest potential market for many years to come. The recent focus on developing the requisite infrastructure and regulatory framework across the board, which includes both manufacturing as well as market access will provide ample opportunities for all entrepreneurs and companies to participate and contribute to the India journey from the very onset of a new dawn. The growth of the manufacturing sector in India had been a cause of concern. At 16% value added to GDP, the sector does not seem representative of its potential which should have been 25% at par with rapidly developing economies such as Thailand s manufacturing sector value added to GDP is around 34%, China 32%, South Korea 31%, Indonesia 24% and Germany 22%. The recent initiatives taken by Government of India are likely to take manufacturing growth to 10% on a sustainable basis.. It is expected to inspire the investors to look at India for their future investments which would improve the ease of doing business and spur manufacturing growth and would go a long way to establish India as a major manufacturing hub Introduction During the last Three decades, India is progressing as one of the fastest growing economies of the world. India and China are considered as success stories of globalization and likely to emerge into a giant economy in the 21st century. The success is defined by the relatively high and sustained rates of growth of per capita national income characterized by a combination of a smart and extensive programme of global economic integration and domestic deregulation, as well as sound macroeconomic management. Admittedly India has attained a high and accelerating rate of growth over the past 25 years viz GDP growth accelerated from 3.5 per cent per year in seventies to annual rates of nearly5.0 per cent in the 1980s, 6.3 per cent during the decade starting and 5.0 per cent over the past three years and the government is now targeting a further rise to 9 and even 10 per cent over the Twelfth Plan. The details of growth of GDP have been shown in Table 1 Page1

2 Table 1 : Growth Rate of GDP (3-04 to 3-14) YEA R % GDP Growth Rate of GDP % GDP Source : Data - Planning Commission On the contrary, recent economic growth in India has been marked by increasing inequalities within regions. High rates of growth in services have been associated with stagnant Industrial and agricultural incomes resulting in non viability of investments in these sectors Manufacturing Sector Status and Potential Manufacturing sector is the key Sector of any economy as its growth not only results in growth of productivity & employment but also strengthens other sectors of the economy. The situation of manufacturing sector in India is a cause of concern especially when seen in comparison to the massive transformation registered in this sector by other Asian countries in similar stages of development. The details of Industrial Growth are given in Table 2 as under : Table 2 : Industrial Growth ( 3-04 to 3-14) YEAR I Growth % Page

3 Industrial Growth Industrial Growth I Growth% I Growth% Source : Data : Planning Commission India s growth story was mainly attributed to service sector whereas manufacturing has been less robust unlike many of the other emerging market countries, where manufacturing has grown much faster than GDP,. The share of the manufacturing sector in India s GDP has remained stagnant for nearly three decades. Currently the share of manufacturing GDP in India is low at ~ 15 /16 per cent as compared to other economies, and in order to realize the true potential of the sector, manufacturing needs to grow at a higher rate than the GDP growth. Globally,India is contributing ~ 2.2 per cent of the world s total manufacturing output, which is at par with developed economies like U.K. and France.as shown in Table 3 : Page3

4 Table 3 : Manufacturing Gross Value Add ( USD Billion) value val Source : UN National Accounts Main Aggregates Data Base Twelfth Plan In view of above,the Potential for Growth can be infer as follows : The manufacturing sector in India had the potential to reach USD 1 trillion by 2025 and contribute approximately 25 to 30 per cent to India s GDP. It also has the potential to create approximately 90 million jobs by A contribution of 25 to 30 per cent to GDP in the future is expected to put India at par with the manufacturing levels of countries such as China, Germany, Japan and the U.S. However, the industrial growth scenario is improving and is estimated at 1.9% in the period April-October The recent measures undertaken by the new government in terms of facilitation to industrial sector, creation of conducive environment for the manufacturing activities, focus on improving industrial policies and procedures and reforming labor laws are likely to boost Economy & Employment in India. Problems in Manufacturing sector in India Comparatively High Costs of Inputs Lack of infrastructure - like power, transport, other things. Lack of Single Window Clearance Facilities Page4

5 Obsolete machines and technology - lessen the competitiveness Lack of Strong and uniform Government Policies, disparities among states Availability of Land for Industrial Purposes Lack of incentives to small scale industries - to upgrade Lack of skilled manpower and conventional Labour Laws Lack of investment in Research and Development Unbalanced Growth in Logistics Sector STRENGTHING THE MANUFACTURING SECTOR In light of various problems faced by Indian business, various issues to be addressed and measures can be adopted to facilitate ease of doing businesses in India : Addressing the infrastructure problems and development of effective transport system through increasing the capacity of railways, highways and expressways Development of industrial corridors to facilitate ease of doing business, increased industrial output, generation of employment opportunities and promotion of socio-economic growth of India. Upgrade scale of Medium and Small Enterprises to global standards in terms of Financial support and manpower so that more companies come under MSMEs Easing the regulatory compliances of the Companies Act of 3 for MSMEs in order to boost external funding for the sector Increased access to finance for MSMEs to reduce the delays and stalling of business projects due to non-availability of finance Accord Priority for Strengthening and consolidation of the incentive structure for corporate R&D activity in the country to further the international competitiveness of national enterprises. Relook into the existing labour laws which put unnecessary regulatory burden on businesses and simplification of the exiting rules for Indian and foreign entities. Developing energy infrastructure with up-gradation of technology and strengthening of high capacity national transmission grid Review and simplify the Land Acquisition Act to ease the process of land acquisition Simplification and rationalization of taxation system with long term stability Policies and Reforms The National manufacturing Policy is a significant policy formulated by the government to facilitate the growth of the manufacturing sector in India. The Policy contents have been reviewed and refined to get on to high speed implementation. Under the policy, the government has planned to set up National Investment and Page5

6 Manufacturing Zones(NIMZ) to bolster the growth of manufacturing activities in India. These zones are expected to be 5,000 hectares in size with at least 30 per cent area earmarked for processing. An NIMZ is planned to have a single window clearance system for approvals and the government provides simplified Regulatory system related to labour, environment, etc. The policy is also expected to leverage the existing incentives/ schemes provided by the government and also, a technology acquisition and development fund has been proposed. Conclusion With various reforms under implementation, the manufacturing sector in India is expected to pick up pace and will provide immense opportunities to domestic and international investors.it will also provide an excellent opportunity to international investors to collaborate with existing businesses as most of the businesses plan to expand through various options. Inspite of the challenges faced in making India a manufacturing hub, the country is poised to reap rich dividend for being one of the youngest nations in the world. According to reports by 2020, India is set to become the world s youngest country with 64% of its population in the working age group. With the Western countries, Japan and even China aging, this demographic potential offers India and its growing economy an edge that economists believe could add a significant 2% to the GDP growth rate annually. However, there is a need for some fundamental changes in Indian economy so that the country emerges as global manufacturing base, On the one hand, manufacturing growth is to be promoted, at the same time we need to ensure that direct benefit goes to the youngsters of India Roughly 16 percent of Indian labour is still in the primary sector.. As India charts its way towards a labour utilisation structure consistent with fellow nations, manufacturing as the secondary sector must also gain momentum. Attaining a near double-digit growth rate without a significant increase in manufacturing may prove to be challenging. Labour requirements in the primary sectors are falling quickly due to increasing mechanisation and productivity gains. The manufacturing sector can absorb semi-skilled workers who are challenged by the fast-growing services sector as well as the primary economy of agriculture and mining. The economic impact of manufacturing in India will go beyond direct employment. It will create jobs in the services sector and allied services like logistics, transportation, retail etc. Needless to say, since manufacturing would require free flow of raw materials and finished goods, improving logistics infrastructure such as port-to-inland connectivity, cargo airports, etc. would be imperative and these developments promise to transform India into a global manufacturing hub that will generate millions of employment opportunities and push India on a high and sustainable growth trajectory in the coming times. Page6

7 References : Data Tables : Planning Commission Acharya S. (6) Essays on Macro Economic Policy and Growth in India, New Delhi: Oxford University Press, Papola (5), Emerging Structure of Indian Economy: Implications of Growing Inter-sectoral Imbalances, Sharma, Praveen (4), Population Growth and Sustainable Development, Economic and Political Weekly, February, 14, pp Dev, S. Mahendra (8), Employment: Trends, Issues and Policies, in Inclusive Growth: Agriculture,Poverty and Human Development (eds.), Oxford University Press, New Delhi. Ashok Raj : Make in India: Challenges and opportunities for manufacturing sector Dr S P Sharma, Ms Megha Kaul & Ms Ekta Goel : Exploring Prospects for Make in India and Made in India Sandip Das : Make in India - A Boost to the Manufacturing Sector N T Somashekar : Development Economics T.S. Papola & Partha Pratim Sahu : Growth and Structure of Employment in India Long-Term and Post-Reform Performance and the Emerging Challenge Jayati Ghosh and C. P. Chandrasekhar : Economic growth and employment generation in India- Old problems and new paradoxes Aradhna Aggarwal and Nagesh Kumar : Structural Change, Industrialization and Poverty Reduction: The Case of India IEEMA Journal May 5 : Domestic Power Boost a must for Make in India Page7