Manufacturing sector on right track, but needs to gain momentum: Unido

Written by Sharad Raghavan | New Delhi | Updated: Mar 30 2011, 07:28am hrs
India is big in manufacturing but is not really there where the profit margins are the highest. The global yearbook on manufacturing released by United Nations Industrial Development Organisation (Unido) on Tuesday, showed up the promise in the Indian manufacturing sector and also the catching up it has to do, to improve its current 9th rank in the list of leading manufacturers of the world as of 2010. The asysmmtery also explains why employment growth has not taken off in Indian manufactruring.

The number one spot in the Unido list is still held by the US with China at second place. But after that the difference between the countries ranked 5th to 10th Republic of Korea, United Kingdom, France, Italy, India and Brazil narrows and so ranks keep on changing. Republic of Korea at the 5th position contributes to 3.2% of the world manufacturing value added (MVA) while Brazil at the 10th place contributes just a shade lower at 1.7%. India ranks above Brazil.

Personally, I am not behind the ranks, they are always changing. They are not very stable as the the difference between these countries is very small, said Shyam Upadhyay, chief statistician, Unido, at the release of Unidos International Yearbook of Industrial Statistics.

In the last decade, the share of major industrialised countries like the US, Japan and Germany in world MVA has fallen. Upadhyay puts this down to the growth of developing countries like India, as well as the global recession, because of which the share of world MVA from industrialised countries fell sharply.

The India data shows that it is the number one manufacturer in the world (excluding China) in a large number of sectors like textile, chemical products, basic metals, machinery and equipment and electrical machinery. It is second in the world in the sectors of medical and precision equipment, motor vehicles and other transport equipment.

But disaggregating the numbers show why those ranks do not push India up the manufacturing league globally. India lags in all sectors where there is the strongest value add. For instance, within textiles, in branded apparels where the profit margins are the highest India ranks 11th, way behind the leader Thailand. In office and computing equipment (again a part of electrical machinery where India is number one) she ranks 6th and in radio and television, 8th.

This is also the reason why labour employment grew by only 50% from 1990 to 2008 in the domestic manufacturing sector, though MVA grew threefold. Since the highest value added sectors are also employment intensive, but which India is poor in, the country has missed out on using the manufacturing growth to create more employment. Instead Indian manufacturers are producing more output per labour input, implying greater efficiency in use of technology and management skills.

A result of dependence on low value production is that India needs to import only 15.5% of its industrial demand, and similarly exports only 12.6%. This makes it the least dependent of external markets of all the Asian economies. A positive fall out of the poor external linkage is that India was so insulated from the shocks of the global economic recession.

On the assessment of overall productivity, in terms of output per resident, India ranks 9th again. Japan leads this list. However, this could possibly be explained by the sheer difference in population size Japans is shrinking, while Indias is around 9 times as large and growing.