Can Bharat become a global manufacturing hub?

The share of secondary sector in GDP and employment of workforce in 2019 compared to 1951 is as under.

Sector Share in GDP (1951) Share in GDP (2019)
Secondary sector 14.9% 27.03%
Distribution of workforce 1951 2019
Industry 10.06% 25.58%

The Industrial Policy Resolution of 1948 was the first development plan in Bharat post-independence which clarified the nature of Mixed Economy Model to be adopted by Bharat.

The Industrial Policy Resolution of 1956 was a review of the earlier resolution in 1948 that also clearly defined and broadened the base of public sector in the economy. The country had only five central public sector undertakings in 1951 with an investment of Rs. 29 Crores and at the end of second five year plan in 1961 the number of these undertakings went up to 47 with an investment of Rs. 950 crores. This is an outcome of the implementation of the first 2 five year plans that laid emphasis on public sector expansion for industrial development in the country.

The Industrial Policy Resolution in 1973 was aimed at reducing the concentration of power and in line with it the concept of joint sector was introduced wherein private sector and the public participation in shareholding and management was encouraged.

Industrial Policy of 1980 focused on enhancing the operational efficiency of the public sector, regularizing the excess capacity installed over and above the licenced capacity, automatic expansion of select industries and merger of sick units which had potential for revival with healthy units which were capable of managing the sick units. It also liberalized the licensing pattern for big industrial houses.

Institutional support for industrial development:

Bharat has set up several institutions to support in financing the industrial development like- 

  • Developmental Financial Institutions ( ICICI, IICIL, IFCI)
  • Refinancing Institutions( IDIBI, SIDBI NABARD, Mudra Corporation)
  • Commercial banks 
  • Cooperative banks 
  • Regional Rural Banks
  • Institutions set up at the state level-
  • State Finance Corporation
  • Industrial development Corporation
  • Industrial Investment Corporation  

Post liberalization after announcing the New Economic Policy in 1991, the Government of India took steps to elevate some highly successful public sector enterprises to the special status of Navratnas wherein they were delegated enhanced financial powers in relation to committing capital expenditure, starting joint ventures and providing incentives to their employees. Some smaller PSUs which could not be granted Navratna status, but were profit making ones were given Miniratna status.

The share of public sector investment in Eleventh Five Year Plan (2007-2012) declined to 23 per cent as against 33 per cent in the Ninth Plan signaling the growth and expansion of private sector. 

The GDP growth rate rose to about 6.1per cent in the Eighth and Ninth Five Year Plans (1992-97, 1997-2002) from an average rate of 5.7 percent during 1980’s in Pre reforms era. The annual growth rate of GDP in the decades 2000-2010 and 2010-2020 has been 6.38% and 6.74% respectively. 

Sector Share in GDP (1951) Share in GDP (2019)
Tertiary sector 29.2% 54.40%
Distribution of workforce 1951 2019
Services 17.30% 32.04%

Once could easily observe from the above data that while the industrial growth in the country has not taken place at the expected level, the growth in service sector has happened rapidly.

It is normal for the countries in their economic evolutionary phase to have a transition from primary sector to secondary sector and then to tertiary sector. Bharat is one of the exceptional nations which has transited from primary sector to tertiary sector skipping the secondary sector in its economic evolution.  

Why the share of manufacturing in GDP has not expanded significantly?

The following are some of the major factors that have impeded the growth of manufacturing sector in our country. 

  • Numerous licenses and Approvals 
  • Rigid labour laws
  • Shortage of skilled labour
  • Weak logistics and supply chain 
  • Difficulty in getting bank loans 
  • Lack of consistency in policies 
  • Challenges in technology up gradation
  • Inadequate R & D
  • Shortage of employable youth 
  • Lack of focus on agro based industries

Major initiatives by the Government

Though Bharat has jumped to 63rd position in World Bank’s Ease of Doing Business (EODB) 2020 report we still have a long way to go since the ground level data for computing the ease of business is taken only from two major cities- Mumbai and Delhi, even though the policy initiatives of the Bharatiya government towards economic reforms are also taken into consideration for measuring the EODB.

The ground level situation in rest of Bharat has to improve significantly to catch up with Mumbai and Delhi and there is also much scope to improve the ease of doing business environment in rest of Bharat. This, in turn, depends upon the collective and collaborative efforts by the states and the centre.

Department for promotion of Industry and Internal Trade established in the year 1995 that comes under the Ministry of Commerce and Industry monitors the business reforms action plan by the states. This department is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view the national priorities and socio-economic objectives.

The ranking of the Bharatiya States for EODB started since 2015 has led to healthy competition among the States and states like Andhra Pradesh, Telangana, UP, MP and Jharkhand have started climbing up the ladder in EODB rankings challenging the supremacy of industrially developed states like- Maharashtra, Gujarat and Tamilnadu.

These initiatives by the states should continue steadily irrespective of the change in the governments in the states failing which our country will not be able to expand the share of secondary sector in GDP.

Bharat ranks 44 in global logistics performance index in 2018. There is wider scope for further improvement in our country’s ranking in global logistics performance index by strengthening the infrastructure. 

Single e-Way Bill for movement of the goods throughout the country introduced in June, 2018 has facilitated smooth movement of the goods across the country eliminating the need for verification and checking at multiple points. This has a reduced the cargo transit time and enhanced savings in fuel cost.

The works in the dedicated Freight Corridors (DFCs) planned between Delhi-Kolkata, Delhi-Mumbai, Kolkata-Mumbai and Delhi-Chennai routes have to be speeded up which would ease the traffic congestion and enhance the speed of the trains by segregation of the passenger and freight services into separate double line corridors.

The proposed Sagarmala project which aims to promote port led development in the country by harnessing 7,500 KMs long coast line, 14,500 KMs of potentially navigable waterways has to be given priority by the government as this has the potential to reduce Bharat’s logistics costs as a percentage of its GDP which is as high as 19% compared with 12.5% in China. 106 rivers across the country that were declared national waterways by the government in April 2016 have to be effectively used for movement of freight cargo.

While the dedicated freight corridors of railways are expected to improve the logistics across the country, the Sagarmala is expected to improve the connectivity of hinterlands with the sea ports and expand Bharat’s global trade, whereas the national waterways are expected to improve movement of bulk cargo, agri-produce and tourism, giving a fillip to Bharat’s rural economy. 

Strategic focus areas for enhancing the share of secondary sector in Bharat’s GDP

With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of Bharat’s manufacturing output.

They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from Bharat. About 20% of the MSMEs are based out of rural areas, which indicates the deployment of significant rural workforce in the MSME sector. (Source-CII) 

Therefore, a strategic approach to push for more manufacturing activities in MSME in urban areas and agro-based industries under MSME in rural areas can result in substantial improvement in terms of overall industrial growth and shift in the workforce towards secondary sector from primary and tertiary sectors. 

Greater emphasis on skill development trainings and vocational courses in universities in order to bridge the gap between graduates and employable graduates is the need of the hour. 

There are currently 388 SME clusters and 1657 rural artisan clusters across the country. There are 240 SEZs that are currently operational across the country. There are currently 740 districts in Bharat (640 as per 2011 census), 6,553 mandals and 6,64,369 villages as of  2019 ( 6,49,481 villages as per 2011 census).

Therefore, the government should set a target of 740 SEZs (one SEZ in each district), 1,500 SME clusters and 6,000 rural artisan clusters in order to scale up the manufacturing segment and enhance its share in GDP.

SME clusters can work as the linkage between the rural artisan clusters and SEZs creating a strong value chain. SME clusters can broadly be set up in two categories- agro-based industries and ancillary units for SEZs. Like the single window clearance mechanism for SEZs, SME and rural artisan clusters too need to have a similar model to speed up the process of various clearances required to set up the units in their respective clusters. 

Right from the day one adequate common infrastructure to be created for treatment and recycling of industrial waste, pollution control and sewage water treatment and recycling at SEZs and SME clusters. A SPV may be formed by the units operating in those SEZs and SME clusters who in turn will have to take the responsibility of maintenance and up gradation of the this common infrastructure. All the units may pay certain user charges to the SPV so that it will become a self-financing model.  

Implementation of the above suggestions will lead to establishing linkages between the various sectors, generation of employment at district level, reducing the urban migration and significantly increasing the share of secondary sector in India’s GDP paving the way for India becoming a global manufacturing hub.  

References- 

  1. https://eodb.dipp.gov.in/Home
  2. https://www.dcmsme.gov.in/clusters/clus/indsme.htm.
  3. http://laghu-udyog.gov.in/clusters/clus/ovrclus.htm.
  4. http://sezindia.nic.in/upload/uploadfiles/files/SEZ.pdf.

(Featured image source: Inventiva.co.in)


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About the Author

Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]