Steering Growth In Indian Manufacturing Sector

Published by MBA Skool Team, Published on May 01, 2013

The government has set target of creating 100 million manufacturing jobs and increasing the sector contribution to India’s GDP to around 25% by 2025. Skeptics argue this may be just wishful thinking as share of manufacturing in India’s GDP has languished around 15% for years while jobs in the sector have shrunk from 55 million in 2004-05 to 50 million in 2005-06.

But Planning Commission member, Mr. Arun Maira, who authored the National Manufacturing Policy, is optimistic that India can achieve its manufacturing potential. He was one of the members who steered the XII Five-Year Plan’s approach to manufacturing. Mr. Maira firmly believes that they have a far better collective understanding of what the real issues are and have planned a road map for addressing them.

Manufacturing Sector in India is a key component in merchandise export for 5 years but it has lagged in the global arena with its Asian peers.  In league of Global manufacturing exports China has 14.8% share whereas India has meager 1.4%.

The problem in India lies in its structural transformation from agriculture to directly in service and not following the normal structural model of development (Exhibit 1 & 2). This renders manufacturing crucial for India's development and employment objectives.

Agriculture today comprises a minor share of GDP (14%), but accounts for a disproportionately large share in employment (58.2%). Emerging economies have 25-30% of share of manufacturing sector in GDP with China at 34% and Thailand contributing 40% towards GDP but India contributes only close to 16%. Indian manufacturing sector continues to grow below its true potential.

Key factors viz. poor infrastructure, low FDI inflow, low R&D spending, govt. policy paralysis, rising raw material costs, labor relations etc. are restraining growth of the manufacturing sector. Though these bottlenecks remain to thwart the growth of the sector, the govt. with private participation can propel the growth by implementing stalled projects, boosting operations, augmenting technology, putting emphasis on quality of education and training of human resource, tweaking archaic labor laws, taping the gap created in world market due to Chinese policy shift (export to consumption oriented), diversifying export markets etc.

The four “Areas of Attention” for requisite growth and “Method of Forging Ahead” in manufacturing sector may be as mentioned in the following exhibit:-

Areas of Attention

Method of Forging Ahead

Majority of India’s largest manufacturers don’t return their cost of capital

Incumbent players need to increase Efficacy

Many sectors in India will experience strong domestic market growth driven by increased consumption

Opportunities should be tapped to reverse the tide from Services to Manufacturing

India could be competitive in a number of industries

Private Companies need to increase Competitiveness

Indian manufacturers lag behind their global peers in key operational areas

Operational Efficiency is the need of hour

To steer growth the changes needed are local and they don’t need parliamentary approvals. The industry has to understand the need of increasing its competitiveness, productivity and use of better technology. The role of human resources cannot be understated. The industry needs to change the approach towards its workforce and treat them as only appreciating asset rather than a ‘hire and fire’ raw material.

The combination of rocketing domestic demand and the multinationals’ desire to diversify their manufacturing footprint offers Indian product makers a once-in-a-generation opportunity to emerge from the shadow of the country’s services sector. By improving their productivity and bolstering operations, they could become an engine of economic prosperity for the whole country. There is a need for strong commitment from the government as well as the industry for the sector to enter the next orbit of high growth and employment generation.

The article has been authored by Parth Sarthi of SIMS, Pune.


Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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