Boosting manufacturing – UPSC GS3

Why companies are expected to exit China

• In the aftermath of the pandemic manufacturing companies are expected to exit China due to three primary reasons.
• 1) Realisation that relying heavily on China for building capacities and sourcing manufacturing goods is not an ideal business strategy due to supply chain disruptions in the country caused by COVID-19.
• 2) Fear of Chinese dominance over the supply of essential industrial goods.
• 3) The growing risk and uncertainty involved in operating from or dealing with China in the light of geopolitical and trade conflicts between China and other countries, particularly the U.S.

Where India stands in comparison with China

• China ranks first in contribution to world manufacturing output, while India ranks sixth.
• Against India’s target of share of manufacturing in Gross Domestic Product (GDP) to 25% by 2022, its share stood at 15% in 2018, only half of China’s figure.
• Industry value added grew at an average annual rate of 10.68% since China opened up its economy in 1978, India’s grew at 7% after India opened up its economy.
• Next to the European Union, China was the largest exporter of manufactured goods in 2018, with an 18% world share.
• India is not part of the top 10 exporters who accounted for 83% of world manufacturing exports in 2018.

Constraints faced by manufacturing sector in India

• They chiefly include infrastructure constraints, a disadvantageous tax policy environment, restrictive trade policies, a non-conducive regulatory environment, rigid labour laws.
• Constraints also include high cost of industrial credit, poor quality of the workforce, Low R&D expenditure, delays and constraints in land acquisition, and the inability to attract large-scale foreign direct investment into the manufacturing sector.

What role States can play?

• They  can  contribute land: Federal government system in India demands the participation of States for the lasting solution to the constraints on the sector.
• An important requirement for the development of the manufacturing sector is the availability of land area.
• This could be one of the reasons why manufacturing activity is mainly concentrated in Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh.
• However, what is of concern is that some States that also have large land area contribute disproportionately little in manufacturing GSDP.
• These states include Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, Telangana, and West Bengal.

Way forward

• Identify reasons: The reasons for less manufacturing activity in these States have to be carefully examined.
• State-specific industrialisation strategies: Based on such reasons, State-specific industrialisation strategies need to be devised and implemented in a mission mode with active hand-holding by the Central government.
• State specific reforms: Policy actions on the part of individual States would improve India’s overall investment climate, thereby boosting investments, jobs, and economic growth.
• Policy actions of the Centre and the States should  be well coordinated: Strategy Group consisting of representatives from the Central and State governments along with top industry executives to instil teamwork and leverage ideas through sharing the best practices of the Centre and States could be formed.

Conclusion