“Thrust on manufacturing is integral to inclusive growth agenda” [June 2012]

June 19, 2012 10:40 am

The manufacturing sector would have to be the torchbearer of employment creation initiative. Every job created in manufacturing has a multiplier effect of creating two to three additional jobs in related activities. Therefore, a thrust on manufacturing is integral to the inclusive growth agenda of the government – N K Minda, CMD, Uno Minda, NK Minda Group
Manufacturing sector gains recognitionThe Indian manufacturing sector has gone through various transitional phases since independence from the license/permit raj era to liberalisation and globalisation. Today the sector is at an important juncture. The last ten years have seen an impressive annual growth rate of around 6.8 per cent, marking a phase of strong performance. This is favourable compared to the growth rates in many other fast developing economies. This same period saw the Indian economy grow at around 7 per cent. The sector has gained recognition by government and industry as a critical sector of the Indian economy and as an important driver of India’s future economic growth.
Auto component sector is one of the key drivers of national economy, as it provides large scale employment, having a strong multiplier effect. Being one of the largest industries in India, it has been witnessing impressive growth during the last two decades. It has been able to restructure itself, design newer technology, align itself to the global developments and realise its potential. This has significantly increased automotive industry’s contribution to the overall industry growth in the industry. The turnover of the auto component industry stood at Rs. 1821.27 billion (USD 39.9 billion) for the period April 2010 to March 2011 registering a growth of 34 per cent (in rupees term) over the previous year.
Poor infrastructure discouraged foreign playersN K Minda, CMD, Uno Minda, NK Minda Group comments, “India had a lopsided growth compared to other countries. Normally a growth in agriculture is followed by a growth in manufacturing sector succeeded by the service sector. But in India we shifted from the agriculture development to the services sector which catapulted our growth to one of the mainstays of the world economy. Because of the huge growth of the service sector, the manufacturing sector was shadowed and contributed hardly 22 per cent to the GDP which is decreasing further”.
Emphasising on the investment path he added, “India currently spends only 1 per cent in R&D. Also in spite of having a strong patent system, the government has not encouraged soft loans for inventors to develop and market their product. Another reason is the huge flux of engineers moving to the more glamorous IT industry thus leading to a mis-allocation of skills and lack of skilled people in the core engineering sectors, which offer lesser pay and where jobs require more effort and energy. Having poor infrastructure has discouraged foreign manufacturers from investing in India. It has been calculated that we need $1 trillion to completely develop our entire infrastructure. Hence there is lot of work to be done”.
12th Five Year Plan initiativesCommenting on the initiatives that can be taken during the 12th Five Year Plan, Mr. Minda said, “Auto fuels should be made available to customers as per market determined pricing mechanism. With growing traffic volumes, railways have the challenge to provide new range of services like customised wagons for carrying automobiles, refrigerated wagons for agri/perishable products in freight and high speed trains for passenger segments, augmentation of the network, provision of higher capacity/high speed rolling stock, reduction of unit cost of transportation and better quality of service. Even though India is the second largest small car market in the world, in India just 3 per cent of finished automobiles move by trains in contrast to global average of 26 per cent”.
100 million jobs – A visionCommenting on 100 million jobs in 10 years Mr. Minda said, “Since the manufacturing sector had jobless growth in the last decade, the Planning Commission has set a target for the industry to create about 100 million jobs by 2025 to fuel the economy and sustain the gross domestic product (GDP) growth rate over nine per cent”.
He further added, “It is a tall order and requires many macro level initiatives by the government for this to percolate down to the industry level. The chain begins where it ends – with the consumption. When the demand for a product rises, companies start local manufacturing which in turn leads to sourcing of raw material and vendors and competent manpower. More jobs result in more buying capacity for the population and hence the circle feeds on itself. There are many variables to this equation, including favorable regulatory and economic environment, which need to be initiated to make this vision true”.
Challenges surrounding creation of jobsThe Government of India has announced a national manufacturing policy with the objective of enhancing the share of manufacturing in GDP to 25 per cent within a decade and creating 100 million jobs.
“The increasing gap in the sectoral share and the productivity of the manufacturing sector, between India and leading economies, indicates that we have not been able to fully leverage the opportunities provided by the dynamics of globalisation.  This also has attendant socio-economic manifestations in terms of over-dependence of a large section of the population on agriculture for its livelihood, disguised unemployment and urban unemployment”, said Mr. Minda.
India has a favourable demographic profile with over 60 per cent of population in the working age group of 15 – 59 years. For a country with the largest young population in the world, this creates a challenge of significant magnitude. Over the next decade, India has to create gainful employment opportunities for a large section of its population, with varying degrees of skills and qualifications. This will entail creation of 220 million jobs by 2025 in order to reap the demographic dividend. “The manufacturing sector would have to be the torchbearer of employment creation initiative. Every job created in manufacturing has a multiplier effect of creating two to three additional jobs in related activities. Therefore, a thrust on manufacturing is integral to the inclusive growth agenda of the government”, Mr. Minda opines.
Transformation in the manufacturing sectorWith a host of firms from Japanese automakers to telecom equipment producers moving to India, manufacturing could overtake services as the engine of growth. This is desirable, as services-led economies are vulnerable to financial upheavals.
With the German engineering technology major, Siemens, planning to make India the global hub for manufacturing its key steel plant equipment, it joins the growing ranks of firms eyeing the country as a launching pad for supplies to Asian markets. “India has the manufacturing and engineering capabilities; it has a pool of skilled expertise, and its size offers it a strategic advantage for servicing markets from Myanmar down to Australia and West Asia, if necessary. The Asia-Pacific region is the epicenter of economic expansion at the moment”, Mr. Minda observes.
Every job created in manufacturing has a multiplier effect of creating two to three additional jobs in related activities. Therefore, a thrust on manufacturing is integral to the inclusive growth agenda of the government
“Slowly but steadily, almost unnoticed, a transformation of long-term significance is taking place in the economy. Indian manufacturing is diversifying not as a result of any policy initiative but because of conditions on the ground that global players are using to their advantage”, he concludes.