Slow-moving manufacturing needs policy intervention

financialexpress.com:

By R.P. Gupta

In the fiscal year 2022-23, the share of the Manufacturing Sector in GDP increased to Rs. 26.17 Trillion from Rs. 25.82 Trillion in 2021-22 at constant prices, registering a modest growth of 1.3%. This growth rate might be the lowest in the past two decades, except in 2019-20 (pre-pandemic), when it was negative. This indicates some structural problems in the macro-economy that must be identified and resolved through policy interventions. Failing to do so may jeopardize the ambitious GDP targets set for 2030 and 2047 by Niti-Ayog in its “Vision document.”

A developing nation like India requires double-digit growth in the manufacturing sector to achieve a consistent overall GDP growth of 7-8%. China’s manufacturing sector growth, reaching double digits for almost two-thirds of decades, has allowed it to surpass India. The share of manufacturing in GDP in most South Asian countries varies between 25-35%, in contrast to India’s 16-17%.

The manufacturing sector has a long economic chain, procuring various goods and services produced elsewhere. On the finished-goods side, services like transportation, distribution, and trade services are generated. The financing requirements for the manufacturing sector are high, generating financial services. Therefore, manufacturing growth is essential for propelling the service sector and overall GDP. It also contributes to increased exports of manufactured goods, which form a significant part of total exports.

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In 2011, the National Manufacturing Policy (NMP) was announced, followed by the “Make in India” scheme in September 2014. Both policies emphasized the need to increase the share of