Manufacturing Sector in India: Make in India

Manufacturing Sector in India: Make in India

LITERATURE REVIEW

Emerging economies have witnessed reliance on manufacturing sector and export of manufactured goods. India has also given manufacturing its due importance since mid – 1980s. But the last two decades has witnessed growth from services sector and not manufacturing sector. Despite focussing on manufacturing sector in India, India did not excel in it as much as its counterparts like China. The reason behind the same can be attributed to numerous reasons. Firstly, the huge presence of unorganized sector, the policies stress on improving performance of registered manufacturing sector and unorganized sector remain neglected. Secondly, infrastructural bottlenecks like lack of power supply, road networks tend to be disadvantageous for Indian Manufacturers. This way the costs of production goes up eventually leads uncompetitive manufactured goods in export markets. Lastly, archaic land acquisition laws tend to thwart the dynamism demanded by manufacturing sector. Also, the discord between centre and state tends to delay the process, affecting the sector adversely.

Keeping all the above factors in mind, Make in India campaign looks optimistic. It makes sure that the issues in previous attempts of reviving manufacturing sector are not repeated. For this, the Make in India initiative looks to revive Indian Manufacturing sector holistically. It gives importance to SME’s(Small and Medium Size Enterprises), better infrastructure and better governance so as to have an inclusive growth.

The contribution of Manufacturing Sector was consecutively 16% towards our GDP from 1980 to 1990 but the share had been 13% in the year 2013.

Consecutively the contribution of the service sector was 40% in the year 1980 which rose to 57% in 2013.

The economy had significant growth post liberalization. Ray (2013) tried to understand whether the growth in the service sector had any influence on the growth of the manufacturing sector. For this he used the data from 1970-71 to 2009-10. He noted, “The results of co-integration test show that there is no long-term relationship between the growths in the two sectors.”

There are many issues plaguing the Indian economy where one of them happens to be corruption. An extensive work was done on this by Kato and Sato (2014) where they tried to investigate the effects of corruption on the performance of manufacturing sector at the state level in India. The conclusion which they arrived at was that corruption reduces gross value added per worker and total factor productivity. The paper also showed that the effects of corruption are more salient in industries with smaller average firm size.

According to Kalirajan and Bhide(2004), Manufacturing was an engine of growth in the 1970s and 80s but this speed slowed down since the 1991 economic reform. According to them the output growth of the manufacturing sector of India in the post reform period was input-driven rather than technology or efficiency driven.

Institution changes also played a large role in the manufacturing productivity, Pandey and Dong(2009) did a study on this vis-à-vis China where it was noted that the productivity of manufacturing industries in China improved rapidly between 1998-2003 in relation to India. There were two important changes noticed in China which wasn’t noticed in India, first the late 1990s saw an enormous wave of ownership restructuring due to the formal endorsement of private property rights by the communist government of China. Second a large scale labour retrenchment program was launched to address the long standing problem of labour redundancy in the public sector which resulted in 30% Total Factor Productivity in the Chinese manufacturing industries.