India has an ambitious target to raise the share of manufacturing in its GDP from an abysmal 16% at present to 25% and to create an extra 10 crore jobs by 2025. Achieving the target however looks very challenging for the Modi government considering the present negative growth trend in manufacturing and the extant level of competitiveness of Indian manufacturing. Manufacturing activity had contracted 0.7% last fiscal and shrank by 1.2% in the April-June quarter of 2014-15.
Compared with key South East Asian nations, India has worst ranking in goods market competitiveness (by WEF) measured by levels of market competition, presence of distortionary taxes and restrictive and discriminatory foreign direct investment rules. In case of labour market competitiveness measured in terms of flexibility in shifting labour at low cost, allowing for wage fluctuation without much social disruption, incentives for promoting meritocracy in work place and equity in business environment between men and women too, India fares the worst.
It is not surprising India ranks 134th in the World Banks ease of doing business ranking. Chinas labour costs are much higher than Indias, the reason why Beijing is now decisively shifting to high-end manufacturing, leaving, in the process, opportunity for India to eye greater share of world markets for traditional labour-intensive products.