Farm, services fuel states GDP growth, not factories

Written by Siddhartha Gupta | New Delhi | Updated: Oct 26 2014, 13:20pm hrs
FarmingThe centre?s plan to push through the ?Make in India? scheme to transform India into a global manufacturing hub may face an uphill challenge. (Reuters)
The centres plan to push through the Make in India scheme to transform India into a global manufacturing hub may face an uphill challenge as some of the countrys largest states including Madhya Pradesh, Uttar Pradesh and Maharashtra have witnessed a decline in manufacturing sector growth despite witnessing healthy economic expansion.

Data available with the Reserve Bank of India shows that contribution of the manufacturing sector in each of these states as declined while services and agriculture and allied activities are the main contributors to the net state domestic product (NSDP).

For six consecutive years since 2008-09, the largest contribution from agriculture and allied activities in absolute numbers has been to Uttar Pradesh, with the state generating Rs 92,163 crore or 22.8 per cent of its net state domestic product from agriculture in 2013-14, registering a 2.5 per cent growth in the sector.

Last year, the contributions from the sector, after Uttar Pradesh, were greatest in Andhra Pradesh, Madhya Pradesh, Maharashtra and West Bengal. In comparison, manufacturing contributed 10.46 per cent to UPs net state domestic product in 2013-14 from a share of 11.03 per cent in 2008-09.

Madhya Pradeshs growth rate of about 11 per cent last year the highest across India was a result of improvements in the agriculture sector that contributed 30.7 per cent of the NSDP, with the services sector pitching in about 57.2 per cent to its economy. However, manufacturing contributed just 8.11 per cent to the state economy last fiscal, down from 12.84 per cent in 2008-09.

In order to attract investments into the state and boost the manufacturing sector, Madhya Pradesh also held the Global Investors Summit recently where according to the state government, maximum expressions of interest were in energy and infrastructure sectors.

Even in the case of Maharashtra, which has the most number of factories in the country, the share of manufacturing has seen a steady decline from a high of 19.36 per cent in 2008-09 to 16.46 per cent last fiscal.

Economists believe that the data must also be seen in the context of domestic and international developments.

Say for instance, the demand for automobiles in the world is going down. If one of Indias states has a heavy automobile industry base, the exports for the state will go down. The effect on its economy will be very evident. But it will only be clear if you place the state in context of the larger picture globally. You cant just say that the state is performing poorly, said DK Pant, chief economist, India Ratings.

Low demand from global markets along with high interest rates and policy uncertainty in the domestic economy slowed down the industrial activities at the national level as well.

In 2013-14, manufacturing sector contracted 0.7 per cent and pulled down the GDP growth rate to less than five per cent. While the manufacturing sector at present contributes 14 per cent to the GDP, the government aims to take it up to around 25 per cent in the next 10 years.

Forecasting a revival in industrial activities from next fiscal, a recent report by Dun and Bradstreet has said that measures taken by the Centre and states to develop infrastructure and the industrial sector could take some time to yield results.

Most of the state governments have been emphasizing on the need to develop their industrial sector and infrastructural facilities to drive the growth of their respective states, it said.