Magnets for Manufacturing

Context: To improve manufacturing, state-specific industrialisation strategies in coordination with the Centre are required in India.

Opportunities for the Manufacturing Sector in India

Companies exiting China: Several manufacturing companies operating from China will relocate their businesses to other destinations, including India.

• Reasons for companies to exit from China: 

• Supply chain disruptions in China caused by COVID-19.
• Fear of Chinese dominance over the supply of essential industrial goods. 
• Growing risk and uncertainty: involved in operating from China in light of geopolitical trade conflicts between China and other countries.
• The recent call for Self-Reliant India is hedging against such risks.

Challenges before India in attracting the Companies:

• Inferiority in manufacturing compared to China: 

• India lags far behind China in manufacturing prowess: 

• China ranks first in contribution to world manufacturing output,  India ranks sixth. 
• India’s share of manufacturing in GDP at 15%  is only half of that of China. (India’s target is to achieve 25% of GDP by 2022).
• Manufacture sector growth in India has been 7% while in China it has been 10.7% since the opening of their economies - 1978 (China), 1991 (India)

• China is the largest exporter of manufactured goods while India is not even in the top 10.

• Domestic Issues: 

• Infrastructure constraints
• Disadvantageous tax policy environment
• Non-conducive regulatory environment
• The high cost of industrial credit
• Poor quality of the workforce
• Rigid labour laws
• Restrictive trade policies
• Low R&D expenditure
• Land Acquisition

•  For, E.g. manufacturing growth is powered by majorly by Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh, where land acquisition is easier.

• Inability to attract large-scale FDI

Way forward: Realising the role of states in promoting manufacturing: 

• Active participation of State governments is needed: As India follows a federal government system.
• For, E.g. Coordination to attract manufacturing companies looking to relocate their plants to India from China.
• For, E.g. To promote electronic manufacturing, a Strategy Group consisting of representatives from the Central and State governments along with top industry executives, has been formed.

• The purpose is to instil teamwork and leverage ideas through sharing the best practices of the Centre and States.

• Reasons for less manufacturing activity in States have to be examined: Some states that also have large land area contribute disproportionately little in manufacturing Gross State Domestic Product (GSDP). 
• These include Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, Telangana, and West Bengal.