The share of manufacturing in our GDP is around 16% and the National Manufacturing Policy aims to increase it to 25% by 2025. Manufacturing sector development is crucial for Indian economy as it has huge skilled jobs creation potential which our economy desperately needs.

The projected growth at 6.5% in 2017-18 is mainly due to high growth in services in the next two quarters and manufacturing growth may remain subdued.

 

Reasons/ issues leading to low growth:

 

  • Excess rigidity in the formal manufacturing labour market and rigid labour regulations has created disincentives for employers to create jobs.
  • Banks are reluctant to offer credit for industrial activity.
  • Industrial Disputes Act has lowered employment in organized manufacturing by about 25% (World Bank Study).
  • Stringent employment protection legislation has pushed employers towards more capital intensive modes of production, than warranted by existing costs of labour relative to capital.
  • Therefore, the nature of the trade regime in India is still biased towards capital-intensive manufacturing.
  • The labour intensity of MSME is four times higher than that of large firms but they have poor access to credit and they are plagued by many serious problems which has limited there growth potential.

 

Suggestions:

 

  • Skill development: Building skills among the large population of minimally educated workforce.
  • Increased use of technology to reduce costs, improved whistle blower system is also necessary.
  • Enacting laws that focus on improving workforce relations together with greater flexibility.
  • Improving infrastructure including development of world class clusters.
  • Reducing uncertainties and providing stability and predictability in regulatory, legal, environmental, taxation areas
  • Providing access to capital at competitive prices.
  • Items for which merchandise export incentive scheme (MEIS) was not granted so far may be revisited.
  • Attention may be focused on assistance to states for export-related infrastructure through assistance to states for development of export infrastructure and allied activities (ASIDE) type schemes.
  • Financial and technical assistance to export industries to improve their standards is needed.
  • The inverted duty structure must be attended to and negotiations of items getting hit under current free trade agreements (FTAs) should be focused upon.
  • Banking system: The autonomy of bank management and enhancement of banks professional capabilities is needed.
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