Manufacturing: the key driver of India’s economy

Agriculture cannot grow at more than 2-3%. For India to cross 8% GDP growth rate, if manufacturing grows at 6%, services will have to grow at 12% that will be quite difficult. Services may be India’s strength, but it has grown in double digits only once in the last 10 years. However, if manufacturing grows at 8%, services will need to grow at 10%.

India must push the growth rate of manufacturing to double digits for GDP to grow at over 8%. Manufacturing will have to outpace services for the overall GDP rate to sustain at above 8% for the next decade or two. India cannot afford the share of manufacturing to fall further. Ideally it should increase. It is essential to bring India in league of developed nations.

Workforce Engagement in Agriculture is static and will reduce

In 2002, agriculture employed 191 million out of 343 million employed people, or 56% of the total employment. This figure-191 million in agriculture has remained static since 1994 and as per government projections, and will remain the same in 2007, 51% of the total employment of 373 million. The agriculture can’t sustain even the present engagement level. The tractors and other mechanical equipment will be essential to improve productivity. That will mean further reduction in employment in agriculture sector.

The government expects and targets 40 million job creations during the 10th Plan. The government expects the services sector to provide 82%, while manufacturing will account for a mere 18%. Is it not a too much of dependence on the service sector?

The government policy and manufacturing

Strangely, the government had no special hopes from the manufacturing sector and so it didn’t have any plan for the manufacturing sector..

The government apathy is the main reason that India has failed to become a global player in the manufacturing area. India failed to attract significant FDI in manufacturing, whereas countries like Thailand and then China moved ahead. The story of the two protected passenger car manufacturers is known to all. The first wave of the entry of Japanese automobile manufacturers- Mitshubishi, Mazda, Toyota- could not move ahead significantly and failed. Suzuki came and survived because of emotional reasons.
Global multinationals, but for few South Koreans haven’t considered India in a big way as a potential destination for establish to set up large scale manufacture facilities and export goods.

However, it is still not late. And now India has proved its capability in manufacturing sector to certain extent. MNCs have realized the pitfalls of putting all their eggs into the China basket. India seems to be emerging as a second manufacturing source. Some of MNCs are planning to make India a global source base for some products that have also a good domestic market. Hyundai Motors and then Suzuki Motors have that strategy. Toyota Motors is also moving with that strategy with setting up of a transmission manufacturing plant in India.

A new mindset and confidence in Indian entrepreneurs is apparent. Indian companies in sectors from pharma to auto ancillaries, to chemicals and textiles- are looking at exports as an integral part of their future strategy. Exposure to global opportunity, MNCs interest in moving to low cost locations, the examples presented by IT and ITeS sector, Chinese manufacturing success stories, government’s helping hand through certain concessions for export- all are behind the change of the mindset.

iT IS HAPPENING NOW

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