Manufacturing sector in the country is struggling to remain positive. A growth of 3.3% in the first month of the current year has enabled the sector to clock a marginal 1.7% growth in the first 10 months. The industry grew at 2.5% during the period primarily due to a 9.3% rise in electricity generation. It is good news for steel industry that capital goods have moved up by nearly 13% in January. The worry continues with consumer durable sector that has nosedived by a further 5.3% compared to previous year. If one matches with the import data, it shows a jump in import of consumer durables, which means a drop in domestic output.
For steel industry, however, the lower production directly hurts and rising import of consumer durables does not help the industry. Taking the year as a whole, domestic industrial production may indicate a growth between 3.5-4% with manufacturing chipping in a rise of 3-3.5%.
The recent history of Indian manufacturing clearly demonstrates the secular drop in value addition and penetration of imports into the various sub-segments of manufacturing. The rising import of processed industrial items has robbed the domestic industry of the wherewithal to expand its manufacturing base. The assembly of the finished products based on the imported raw inputs has been found not only an easy option but also provides opportunities for diversification to alternate areas that yield higher margins without investment and making much of an endeavour. This is the primary reason why manufacturing is no longer generating job opportunities barring in areas like marketing and finance that do not have a multiplier effect on other sectors.
The concern is on the employment elasticity of manufacturing. It is well established that an average addition of 1.2 million people every year in the job market much exceeds the employment capabilities of manufacturing, mining and electricity sectors, the three cornerstone of industry. The primary and service sectors are unable to provide jobs for the remaining numbers adding to the rising army of the unemployed every year.
Further the big firms in each of these categories complain of skill gap of the existing members in the job market. The lack of industry specific vocational training conducted by ITIs is adding to the problem. The creation of sector skill councils with active support from the industry needs to be encouraged by the government fully to meet the skill gap in the workforce.
The role of small and medium enterprises in creating employment in manufacturing also attains significant importance. The MSME sector needs to be incentivised to provide job opportunities. It would also contribute to value addition depending on the support it gets from the bigger units. The revised norm of bank lending must provide adequate liquidity for the MSME sector.
Demand for steel emanates from construction, manufacturing and processing industries. As capital formation in construction has a much higher gestation period than industrial output, a robust manufacturing always compensates the shortfall in investment in construction activities in stabilising the demand for steel. This has not been exactly happening in India for the last few years. While stalled projects (worth R8.5 lakh crore) have not permitted flow of investment in infrastructure and construction sectors, the sagging state in manufacturing sector has impeded growth in steel consumption in the country.
Unfortunately, whatever little growth in overall steel consumption was visible in the past few months, the incremental growth in steel imports (steel imports during April-February ’15 higher by 75% over last year) has taken over a larger component in it. The import challenge has to be squarely met by steel industry to provide leadership in ‘Make in India’ programme.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.