Manufacturing is and will be the prerequisite for India’s economic development | India, the world’s largest democracy, has decisively voted for a single-party government and the new government is in place. Voters have exercised their choice in favour of a party, which promised them development, economic growth, and good governance, apart from other goodies. With people in the age group of 15-54, the segment of the population, which can work, earn, and spend, and thereby tangibly contribute to increased production, consumption, and economic activity, constituting almost 60% of the country’s population, the need to create more gainful employment opportunities is given.
Only long-term job creation and availability of rewarding livelihood opportunities can result in empowering the populace to aspire for better quality of life. For India, a country whose vast majority is engaged in the agricultural economy, which is not the most productive sector and is not in a position to enter the service sector, manufacturing industry holds the best promise. The manufacturing industry can create jobs and disposable incomes, draw people from less to more productive economic activities, and produce consumer goods for which a growing demand exists, and thus spur the economic growth cycle.
While the major role of the consumers’ in the country’s economic development is to remain productively engaged and generate demand, the industry must invest in creating the industrial infrastructure and take the demand-fulfillment side responsibility. It is the role of the government to create the necessary supportive policy framework, platform, institutions, and ambience; these are some important subsets of good governance.
In undertaking the economic development journey, which began to gain momentum after the country initiated the reform measures, India has taken the unique path of moving directly from agrarian society to service oriented economy without leveraging the benefits of industrialisation. That the country’s domes tic consumer-demand has largely provided the impetus for the growth is yet another distinguishing feature of India’s economy. While the expansion of the service industry, especially the information technology industry, has so far helped the country’s economy to expand, create jobs for the educated, and earn foreign exchange, moving forward, India’s manufacturing industry has to grow and expand, if India is to achieve a long-term sustainable economic growth.
The McKinsey report “From poverty to empowerment: India’s imperative for jobs, growth, and effective basic services,” says that “India needs 115 million new non-farm jobs over the next decade to accommodate a growing population and to reduce the share of agriculture in employment.
The manufacturing and construction sectors can form the backbone of this effort, as these sectors are well suited to absorbing lowerskilled labour moving out of farm jobs.” Tragically, the manufacturing industry presently contributes to less than 15% of the national GDP; in the absence of a strong manufacturing industry, the country has become import dependent to meet a significant share of the aspirational wants of the people. India’s import list includes, apart from crude oil and gas, industrial output of almost every conceivable description.
RBI’s annual report for 2012-2013 highlights that the industry’s contribution has declined particularly since the fiscal year 2009-10. Inability to meet this demand due to the absence of adequate production capacity within the country, has led to demand-supply mismatch, which, on one hand, constrains the country’s economic growth and on the other contributes to high trade and current account deficits.
The growth of the manufacturing industry in India is a prerequisite to set in motion the virtuous cycle of economic development: job creation, expanding consumption, demand fulfillment, and wealth creation and distribution. It would also improve the country’s fiscal position and bring under control the trade deficit which otherwise has been ballooning. These in turn would strengthen the country’s economic position. Only a robust manufacturing industry, which produces the goods that meet the basic and aspirational needs of people emerging out of poverty, can create jobs in large numbers and place the country back on a sustainable growth track.