Magnets for Manufacturing

The Hindu     26th August 2020     Save    
QEP Pocket Notes

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.
QEP Pocket Notes