The manufacturing sector in India needs to prioritise technology-driven approaches to achieve growth and prosperity. It can be the best bet for ‘viksit Bharat’
The remarkable boost in India's growth projections, majorly driven by its manufacturing sector, surging at an impressive 10.4 per cent growth in October has turned its turbulent road into fueling optimism and prospects. Rewinding a year the manufacturing sector’s growth was discouraging at a - 5.8 per cent. However, from a yearly perspective, the sector concluded the year on a robust note, driven by a resurgence in demand.
In a year marred by geopolitical tensions, persistent inflation, and turbulent demand on the global stage, India's manufacturing sector defied expectations by exhibiting remarkable resilience. Despite the headwinds, India stood its ground, which was later reflected in the manufacturing sector's performance and has been identified as a crucial driver of economic growth.
The government has taken several initiatives to strengthen the sector, such as the Production-Linked Incentive (PLI) schemes, robust policy thrust, and fresh investments. However, despite these efforts, there are still several challenges that need to be addressed to unlock the potential of the manufacturing sector fully.
The manufacturing industry is a crucial component of our country's economic activity, and it has shown signs of growth after several quarters of subdued performance.
To enhance employment in this sector, we need to increase its contribution to at least 25% of our gross domestic product (GDP) from the current 17%. This will require the right kind of effort and direction to achieve our ambitious export goals of $8.3 trillion by 2047 from New India- ‘Viksit Bharat’. We are not able to derive the full benefits of the manufacturing industry, despite the age of liberalization, privatization, and globalization. However, India's goods exports have increased significantly over the past few years, reaching $453 billion in 2022 from $9.1 billion in 1985. In comparison, China's goods exports have grown more than 131 times from $27 billion in 1985 to $3500 billion in 2022.
China's merchandise exports surged because it adopted an export-oriented approach, specialising in industries with higher export potential. It tried to benefit from economies of scale and focussed on SEZs and other trade-related infrastructures like ports, logistics and effective single-window clearing systems. China adopted a long-term strategy of skilling its labour force which made technology absorption much easier and allowed it to move up in the global value chain, leaving low-end products to low-wage countries like Vietnam and Indonesia. India could not achieve the desired level of skilling, leading to export inefficiency.
India’s weak infrastructure continues to be a fatal flaw for the manufacturing sector. Our country uses only 3% of its GDP for infrastructure construction each year, as compared to China’s 20% of its GDP. Even today, India’s surface transportation systems simply cannot meet the expectations of modern high-speed logistics – the backbone of efficient manufacturing.
The manufacturing sector in India needs to prioritize technology-driven approaches to achieve growth and prosperity. This includes affordable digitization and automation, homegrown technology, sustainability, innovation and emerging manufacturing technologies, and adopting sustainable practices. Automation is crucial for success in this sector, but its adoption in India remains low and requires immediate attention. A holistic approach that considers product, process, and sustainability is essential.
Micro, small, and medium enterprises (MSMEs) account for 36 per cent of India’s total manufacturing output. However, MSMEs face several challenges, including limited market reach, lack of access to finance, and inadequate technology. To enhance the efficiency and cost-effectiveness of logistic processes, efforts should be directed towards streamlining them. Improving energy efficiency will also be critical for the growth of MSMEs. Priority financing and guidance are required to help MSMEs grow their business in the international marketplace.
The startup boom is also a great asset for the economy, as it has the potential to bring in investments and scale up manufacturing. A collaborative model that incentivizes the industry and supports stakeholders along the value chains is essential for building a resilient manufacturing sector. The focus should be on supporting fragile stakeholders, starting with suppliers, to achieve a shared vision.
India's manufacturing industry requires a significant investment in infrastructure, including transportation systems, power and water supply networks, and high-speed internet access. India has a wealth of talent in science and technology, and fostering innovation will be key to building a strong manufacturing sector. The government can support this by providing funding and incentives for research and development. To achieve the goal of becoming a developed country by 2047, India needs to modernize its regulatory system and business laws. Simplifying regulations and reducing bureaucratic red tape can attract more investments, as India's regulatory environment can be complex for manufacturers to operate efficiently.
India has great potential in the manufacturing sector, which can make it an industrial superpower. To achieve this goal, all industry stakeholders need to work hard and strive for competency and competitiveness. It is also important to encourage more young entrepreneurs to come forward and contribute to this dream of making India a globally competitive hub for the industry.
In conclusion, India has the potential to emerge as a major global player in manufacturing. The government has initiated various measures to strengthen the sector, and businesses must adopt successful strategies in uncertain times. One such strategy is "To grow global, go local". By focusing on local markets with the right incentives and infrastructure, businesses can significantly enhance revenue streams and meet the needs of both local and global customers, invigorating local economies. It is expected that from 2024 onwards, India will be on the verge of crossing the milestone of becoming the world's third-largest economy, with a target of $5 trillion by 2025.
(The author is Vice-Chairman of Sonalika Group, Vice-Chairman of the Punjab Economic Policy; Views expressed are personal)
