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MANUFACTURING SECTOR IN INDIA-GS3 MAINS(UPSC)2020-21

CURRENT SITUATION

  • Manufacturing as a % of the GDP at about 16 %
  • India is the fifth largest manufacturer in the world 
  • (CAGR) of around 7.7 % between 2012-13 and 2017-18
  • 77% Weightage in IIP
  • 60% of Industrial GDP
  • Employs 15% of India’s Population
  • India ranked 63rd in Ease of Doing Business Report 2019 by World Bank, up from 142nd in 2014.
  • FDI regime liberalized, improving India’s rank in annual FDI inflows from 14 in 2010 to 9 in 2017. However, India receives only 25 per cent of the FDI that China gets and only 10 per cent of what the USA receives. 
  • Industrial Sector posted just 0.6% growth in 2019-20 as compared to 5% in 2018-19 (based on IIP).
  • Manufacturing Sector growth was 0.9% in 2019-20 as compared to 4.9% in 2018-19.

 

ISSUES & CHALLENGES

Structural issues   

  • Pre Mature industrialization
  • Dwarfs dominate India’s MSME landscape  
  • Informal sector

As per Eco Survey 2019 :  

  • Economic policy uncertainty in India which was highest in 2011-2012 🡪 Increase the systematic risk and thereby the cost of capital in the economy 🡪 Lowers investment.
  • Rigid labour laws

Economic Survey 2020:

Wants India as a major hub for final assembly in a range of products, referred to as “network products” (NP)- NP into its two main sub-categories – parts & components (P&C) and assembled end products (AEP).

As per NITI Aayog

  • Challenges to doing business:. Getting construction permits, enforcing contracts, paying taxes, starting a business and trading across borders continue to constrain doing business.
  • Technology adoption: The adoption of new technologies like artificial intelligence, data analytics, machine-to-machine communications, robotics and related technologies, collectively called “Industry 4.0”, are a bigger challenge for SMEs than for organized large-scale manufacturing. Data security, reliability of data and stability in communication/transmission also pose challenges to technology adoption.
  • Exports and insufficient domestic demand: There has been no export-driven industrial growth. 
  • Inadequate Infrastructure – Poor networks of roads, inadequate air & sea port capacities, undeveloped railway networks, lack of uninterrupted power supply & industrial machineries, unorganized warehousing, high logistics cost (14% of GDP) 
  • Skill deficit – unskilled labour force, lack of training/vocational programmes, inadequate industry- student interface.
  • Poor investment in R&D  low competitiveness & inability to integrate into global supply chain.

GOVERNMENT INITIATIVES

OBJECTIVES

  • Double the current growth rate of the manufacturing sector by 2022.
  • Promote in a planned manner the adoption of the latest technology advancements, referred to as ‘Industry 4.0’, which will have a defining role in shaping the manufacturing sector in 2022.

INITIATIVES

  •  Make in India Action Plan aimed at increasing the manufacturing sector’s contribution to 25 per cent of GDP by 2022. 
  • Start-up India to promote entrepreneurship & innovation
  • MUDRA and Stand-up India to facilitate access to credit. 
  • Setting up of industrial corridors, to boost manufacturing.
  • IBC 2016
  • IPR Policy 2016
  • Labour reforms
  • Skill sector reforms
  • PMKVY 2.0 (2016-2020)
  • 723 Pradhan Mantri Kaushal Kendras established till Jan 2020.
  • 14,602 Industrial Training Institutes (ITI) present in India.
  • National Policy on Electronics (NPE), 2019
  • financial assistance to the Modified Electronics Manufacturing Clusters (EMC2.0) Scheme.
  • 100 per cent FDI in contract manufacturing through automatic route.

BUDGET 2019 Initiatives

  • Part of 10 point vision for decade –  Emphasis on MSMEs, Start-ups, defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices under Make in India.
  • Tax rate reduced to 25% for companies with annual turnover up to Rs. 400 crore.
  • MSMEs – Rs. 350 crore allocated for FY 2019-20 for 2% interest subvention (on fresh or incremental loans) to all GST-registered MSMEs, under the Interest Subvention Scheme for MSMEs.
  • Measures to deepen bond markets:
    •  Stock exchanges to be enabled to allow AA rated bonds as collateral
    • User-friendliness of trading platforms for corporate bonds to be review.
  • Rs. 70,000 crore to be provided to PSBs to boost credit
  • To attract FDI –
    • Local sourcing norms to be eased for FDI in Single Brand Retail sector.
    • Government to organize an annual Global Investors Meet in India, using National Infrastructure Investment Fund (NIIF) as an anchor to get all three sets of global players (pension, insurance and sovereign wealth funds).  
MORE POINTS WILL BE DISCUSSED IN CLASS IN DETAIL

 

Budget 2020-21
  • Investment Clearance Cell proposed.
  • Electronics manufacturing policy proposal
  • National Technical Textiles Mission
  • NIRVIK for higher export credit disbursement
  • Duties and Customs revised on various products
  • Zero-Defect Zero-Effect manufacturing
  • National Infrastructure Pipeline
  • National Logistics Policy
  • National Skill Development Agency

WAY FORWARD

As per Eco Survey 2019

  • Investment (Especially Private Investment)- It is the ‘key driver” that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction and generates jobs.
  • Exports  East Asian Economies show that strong correlation between growth in exports and GDP growth.
  • Minimise Policy Uncertainty  – Top-level policymakers must ensure that their policy actions are predictable, and reduce ambiguity/arbitrariness in policy implementation.
  • Sun set clause for incentives given to MSMEs.

As per NITI Aayog : Demand generation + augmentation of industrial infrastructure + promotion of MSMEs

  • leveraging proposed public procurement and projects. Mega public projects such as Sagarmala, Bharatmala, industrial corridors, and the Pradhan Mantri Awas Yojana (PMAY).

The Madhepura Electric Locomotive Project, a joint venture between the Indian Railways and the French multinational Alstom, provides a good example. The project enabled effective transfer of technology and the availability of state-of-the-art locomotives for the railways. The Madhepura model is replicable in the defence, aerospace, railways and shipping sectors.

  • Industrial corridors should address the lack of infrastructure and logistics. Logistics will need to be supplemented with warehousing and other elements of the manufacturing supply chain.
  • Set up a portal to monitor projects beyond a given threshold so that any roadblocks are identified and addressed on a real time basis.
  • Efforts should be made to develop self-sufficient clusters of manufacturing competence, with Cluster Administrative Authorities empowered to provide single window clearances to entrepreneurs and investors. 

It should also develop a local brand and distribution channel through an e-commerce platform.

  • Simplification of the regulatory process

Streamline discretionary powers vested at different levels of governance by adopting digitized processes and making all approvals electronic in a transparent, time bound manner.

  • Disruptive technology, while leading to job losses in traditional areas, also presents new job opportunities. A greater connect between government-industry-academia is required to identify the changing requirements in manufacturing and prepare an employable workforce. In the context of employability of engineers, there is a need for thorough review of standards of engineering education and its linkages with industry.
  • E-commerce can be the driver of overall economic growth over the next decade through its impact on generating demand, expanding manufacturing, employment generation and greater transparency. 
  • Harmonize Indian quality standards with global standards in many sectors. Lack of harmonization has affected Indian exports and prevented the leveraging of trade agreements adequately. For e.g., the medical device industry would benefit greatly from conformity to standards that are essential for new products to be acceptable to doctors and patients abroad. 
  • In respect of MSMEs:

– Setting up of mega parks and manufacturing clusters in labour intensive sectors with common facilities to reduce costs and improve quality. It is also recommended that state governments should set up plug and play parks (flatted factories) to ensure international productivity standards.

Workers of industrial units in the new mega parks should have decent accommodation within reasonable proximity of the work place.

An expert committee should examine sector-specific pain points and make its recommendations within three months.

WILL BE DISCUSSED IN CLASS IN DETAIL

CONCLUSION  

Eco Survey 2019    To achieve the target of becoming a USD 5 trillion economy by 2024-25, India needs to sustain a real GDP growth rate of 8%. Such growth can only be sustained by a “virtuous cycle” of savings, investment, exports and supported by a favourable demographic phase.

 

3 D by PM – Democracy, Demand, Demography

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