India Can Realise The Target Of 25% Of GDP From Manufacturing Sector With Timely New Measures

As on December 2923, the PLI scheme has attracted investment over Rs. 1.07 lakh crore, providing over 6.78 lakh jobs, both directly and indirectly and exports exceeded by Rs. 3.40 crore

Manufacturing sector is an important contributor to the GDP of any country, including in boosting exports and employment respects. There has been a general presumption that the agriculture sector is less productive vis-à-vis the overwhelming number of those dependent on this for their livelihood.

It is therefore necessary to focus on expansion of industrial activities, MSME startups, supporting units that supply raw materials to the manufacturers and creating self-employment avenues.

We need to establish more industrial corridors and MSME clusters with all infrastructure, logistics and skilled labour, particularly in semi-urban and rural areas so that the excess labour can transition from agriculture to manufacturing.

The Union government 's initiatives like start up India, Made in India, one product per district, aspirational district development by identifying newer products for commercial production, encouragement to women by promoting cottage and localised industries, both for domestic and exports have undoubtedly been right step. Going further, qualified, skilled, trained youth and women will get a gainful employment or go in for self-employment, which will enhance their standard of living and purchasing power along with greater contribution to manufacturing sector and the GDP thereof.

There is more scope for starting sunrise industries, clean energy related enterprises, health care, infrastructure, biotechnology, pharmaceuticals education and defense manufacturing. With newer technology and digitalised manufacturing, the scope for improving and enhancing the quality, productivity and value of the products are greater. It presupposes larger capital investment coupled with innovation (R&D) and technology which will help tap the future potential of manufacturing sector. An enhanced investment, and innovation and technology, both from public and private sector, will make the manufacturing sector a robust revenue earner.

Indian manufacturers should aim to be global suppliers of raw materials, finished products, specialised high-end products so as to become a hub for global supply, something that China was able to achieve.

Today, the ‘China plus one strategy’ has become a business strategy that involves diversifying manufacturing and sourcing operations beyond China. The goal is to reduce the risk of over-reliance on China and to capture new growth opportunities in international trade. Vietnam, Taiwan and Malaysia took greater advantages of this ‘Chine plus one strategy’ with favourable govt policies, ease of doing business, operational cost efficiencies and incentives provided to woo foreign investors. India can also capitalise given its large domestic market, relatively low-cost talent and favourable policies of the government. India has attracted global players like Apple, Pegatron , Foxconn and Wistron, which all have started contract manufacturing and are expected to go in for collaboration with some leading Indian corporates.

Meanwhile, the government has introduced Production Linked Incentive Scheme for more than 14 sectors. As on December 2923, the PLI scheme has attracted investment over Rs. 1.07 lakh crore, providing over 6.78 lakh jobs, both directly and indirectly and exports exceeded by Rs. 3.40 crore. It has also helped in achieving imports substitution. However there is much scope to widen the investment and providing best of the infrastructure, skilled staff and favourable and conducive environment with least regulatory risk and ease of doing business. The current contribution has come from large scale electronics manufacturing, pharmaceuticals, food processing and telecom and networking products.

The government has allocated incentive outlay of Rs. 1.97 lakh crore for PLI 14 sectors so as to attract investment in the areas of core competency and cutting-edge technology, ensure efficiencies, create economies of scale, enhance exports and make India as a part of the global supply chain along with India's vision of becoming leading manufacturing hub on the world stage.

This vision needs to be monitored with the progress made under PLI and globally identified players from the 14 sectors are to be specially invited to take advantage of the scheme. Establishing clusters for the all-round development of these sectors and MSMEs should be ensured. The returns will be manifold.

It has been India’s cherished hope that the share of our manufacturing sector should rise to the level of 25 per cent at the earliest. However, the sector has not been able to enhance its contribution in recent years. In fact, it has declined from 16.7 per cent in 2013-14 to 15.9 per cent in 2023-24. This declining trend has to be arrested and the growth rate ought to be accelerated as the sector's average annual growth rate over the last decade has been a mere 5.2 per cent. It is good to note that its value added was 14.3 per cent in 2023-24.

As already mentioned, along with fresh investment, high-end technology, newer areas of innovation, what is needed is a greater spending on research and development, new products patents in the global market, widening the reach of India to international markets, particularly the hitherto untapped potential market with higher margin, domestically improving substantially logistics and reducing the logistics cost to international level, providing skilled and able labour force in newer areas of semiconductor, green energy, defence, space technology and telecommunication.

Many developed and developing countries are competing to get an edge in terms of successfully tapping the immense potential that exists. We must not be found short in these pioneering initiatives.

India's manufacturing sector is poised to reach $one trillion by 2025-26. Currently, China contributes 31.63 per cent of global manufacturing, the United States 15.87 per cent, Japan 6.52 per cent, Germany 4.78 per cent and India way behind with 2.87 per cent.

We need to create more favourable destination for enhanced investment from foreign global players. India needs to enhance its direct FDI investments and make full use of the 42 free trade agreements with various countries and regions. We have a favourable taxation policy. It hopes to achieve an export target of $one trillion by 2030.

This can be achieved by widening the domestic consumption demand and becoming the preferred country for global imports, to thereby realise the target of 25 per cent of GDP from the manufacturing sector.

(The author is former Chairman & Managing Director of Indian Overseas Bank)