The need to revamp manufacturing

Thu, Dec 31, 2015

In Focus

Over more than a year after rolling out “make in India” campaign the state of manufacturing sector of India stays dismal. Manufacturing sector contribution of 16% to GDP is ridiculously low when compared with other developing countries especially china where the sector contributes 36%. The failure to develop proper infrastructure and dearth of skilled workforce are two major reasons for this underdeveloped sector.

Japan, China and the US are investing good deal in infrastructure but the onus to skill its workforce lies on India and it is high time India feels the need to address this critical and cardinal issue. India is no doubt one of the largest and cheapest hubs for providing labour but over 90% of it still remains unorganized and even a greater percentage unskilled. Focus should be on skilling the human assets we have. This can be done by motivating youngsters to enrol in vocational training courses; diplomas etc where practical training could be given. Instead of opening engineering colleges in every nook and corner of country and preferring traditional education, stress should be laid on providing vocational training to the youth and equipping them with the skills actually required by the industry hence bridging the gap between skills possessed and skills demanded. Also, if India wants to capitalize on the stalling economy and increasing wage prices in other countries especially China, this is the best foot forward. Multinational  companies such as Foxconn, Sony, Motorola, General Motors, Chinese smart phone manufacturers such as Xiaomi, OnePlus, Coolpad have begun to look at India for setting up their manufacturing units. Hence, this step becomes all the more important.

Other issue which demands attention is the time and effort required to start a new business and shutting one. Much has already been talked about ease of doing business and no doubt India has successfully improved its ranking from 142 to 130 but obsolete laws, dysfunctional courts, manipulative and biased policymakers, corrupt bureaucracy and ill informed citizens still haunt the very progress of the nation. It requires over 29 days and 12 procedures to begin a venture. Efforts have been made to spur investment and reduce bureaucratic hurdles but much needs to be done specifically in the area of ease of closing business. People still have to go through a long time consuming labyrinth process of shutting down their businesses due to obsolete insolvency laws which ends up demotivating them and forcing them to look for other lucrative countries to operate. Thus hurt Indian economy in every respect.

Government should also help assisting the start up boom and attract fledgling entrepreneurs to enter manufacturing sector by providing them a conducive ecosystem to start, run and shut down their businesses. With assistance and proper funding they could help generate employment to both skilled and unskilled labour, reduce dependency on imports and push exports.

The government has made some positive moves in the foreign investment sector by easing rules, simplifying procedures, raising sectoral caps in various sectors such as defence, banking and broadcasting and allowing FDI in others. But the government and the people will not be able to reap the benefits of these amendments if infrastructure and connectivity remain in desolate state and laws remain regressive. Infrastructure can be improved by attracting investment in construction sector and for improving connectivity, privatization of railways  and  funding them   through  foreign

investment can help revamp this sector. Along with this there is a dire need to raze red tapism, organize labourers, reform labour laws and provide political stability to the foreign investors. Changing government brings forth changing rules which are tailor made according to their needs but the MNCs face tough time adapting to them. Hence, political stability becomes an important factor for foreign companies considering India as their investment destination.

Organizing subsidies can also help finance “make in India” campaign. There is an urgent need to cut subsidies in certain sectors and arrest leakages. Contribution of major subsidies is down to 1.6 per cent of GDP in 2015-16 from 2.5 per cent of GDP in 2012-13 but still a lot needs to be done in transferring subsidies directly to beneficiaries.

India took a different path towards development jumping from agriculture based economy to services based bypassing manufacturing.  With agriculture sector experiencing a shift from manual to automated and services sector on the verge of saturating, India needs to concentrate on this languishing sector.

By- Deepti Sekhri

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