By Priya Saraff
Paul Krugman, the 2008 Nobel Laureate of Economics, recently highlighted the importance of growing the Indian manufacturing sector, with an emphasis on generating jobs at a News18 event. What India has going for it is its young population, unlike China and Japan, and could emerge an Asian leader, if only it creates enough jobs. Although India is known for its service sector, Mr Krugman warned that the advent of artificial intelligence could hit hard on certain service jobs. At the same time, he recognised India’s first-mover advantage with the globalisation of services.
The importance of the manufacturing sector
A 2016 article on India Infoline gives a detailed explanation of the need to spur the manufacturing sector and implement “Make in India“. The service sector cannot employ the uneducated and undereducated workforce of India. With so many people working in the unorganised sector, formalisation of jobs becomes all the more important. The country should focus on maximising the growth of labour-intensive industries and boost investment (especially foreign investment) for the same. History shows that high growth in manufacturing is a common feature of development. Positive linkages and spill-over effects are also seen more in the manufacturing sector than agriculture.
The challenges India will face
India’s rigid labour laws have proven to be a significant challenge in the creation of jobs. As businesses expand, more and more restrictions are placed on them. This hinders employment and productivity, especially in labour-intensive industries that face a lot of unpredictability. Multiple research papers have backed these findings. Labour reforms are the order of the day, but they remain very difficult to pass. India’s manufacturing sector also struggles with lack of skilled workers. Those who are untrained are stuck doing informal jobs, without a chance to upgrade their skills. Those who are educated, though they fall short of global standards, chase after higher-paying jobs. That leaves those in the middle, and they must be trained.
Make In India: Has it delivered?
One of the Government’s flagship projects, “Make In India” was launched in September 2014 to enhance the global competitiveness of the manufacturing sector. The Government launched Make In India 2.0 in February 2018. According to the Economic Survey 2018, it is set to focus on the ten champion sectors including capital goods, auto, defence, pharma and renewable energy. It will also push for growth in the sectors of biotechnology, chemicals, leather, textiles, food processing etc.
It may have various versions, but a Forbes article, published in July 2017, shows that on many fronts, the ambitious scheme, with the goals of providing 100 million jobs by 2022 and boosting the contribution of manufacturing to 25% of GDP by 2025, has not come through. Although bureaucracy has reduced and India has jumped ahead in the Ease of Doing Business, much more is left to be done.
Demonetisation had a very heavy impact on the industry, and although its effects are slowly fading, it cannot be ignored that several small firms closed down permanently. Apart from that, “Make In India” was supposed to focus on defence production. India imports more arms than any other country in the world, making up for 13% of worldwide sales between 2012-2016. India depends on countries like Russia and the US for its weaponry. The foreign investment is also not as much as reported. There seems to be a disparity between the figures given by the Department of Industrial Policy and Promotion, which showed a jump of 23.1% in foreign investments from 2014-15 to 2015-16, and those of the RBI, which showed a fall in foreign investment between the two years from $9.6 billion to $8.4 billion. The proportion of FDI to manufacturing fell in 2015-16, from 35-40%, an average over four years, to 23%. There were more investment offers in 2016, but not as many as in 2011. More than half the FDI received is actually from those of Indian origin.
Various reasons have been given for “Make In India” disappointing because, an overvalued currency, high real interest rates, unfavourable trade agreements. A more basic reason is that entrepreneurs are simply not getting good returns. Industries depend on agricultural inputs to a large extent, 40-45%. The terms of trade, the relation of change in the price of inputs to change in the price of outputs, work against the manufacturing sector. Agricultural inflation rises at a much faster rate than manufacturing inflation. As of 2016-17, agricultural inflation at 5.0% is 195.0% greater than manufacturing inflation at 2.6%, with 2004-05 as base prices. While farmers produce crops that provide high MSP and receive increased wages through schemes like MNREGA, free trade agreements, like those with ASEAN, often cap prices of manufactured goods.
Skill India a target for the future
That is not to say there is no hope. There are various missions and programmes working with skill labourers. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) (2016-20), launched by the Ministry of Skill Development and Entrepreneurship, or “Skill India”, is one such mission. The mission has different branches – programmes such as Short Term Training and Special Projects, and Recognition of Prior Learning. These programmes are carried out in centres approved by the National Skill Development Corporation (NSDC). The Short Term Trainings programme is for college dropouts and the unemployed, providing skill development and enhancing financial and digital literacy. Since it began, 13 lakh people have been trained, 9 lakh certified, and there is a placement rate of 55%. Placements are both in the form of wage (76%) and self-employment (24%). Wage employment is major across sectors like electronics, beauty, retail, agriculture etc. 4.5 lakhs have been certified under the Recognition of Prior Learning. Much as its name suggests, it recognises informal training to be as legitimate as formal education. This is an important programme for those in the unorganised sector, where skills are picked up through observation or through minimum guidance. It enhances employability and even gives chances to pursue higher education. It also helps communities retain and encourage their traditional arts and craft skills as when NSDC worked with Jaipur Rugs Foundation. It could prove to be even more important for women workers, who not only develop their skills, but also a sense of confidence.
The road ahead
Just like any other economic challenge, the development of the manufacturing sector is to be looked at in the long-term. There are programmes in place intended to provide employment, to bridge the widening gaps in education within the community. Mr Krugman’s words are to be taken as a reminder of what to prioritise. We need to introspect to understand where we are faltering and start taking determined, earnest steps to create progress.
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