How manufacturing sector drives economic growth

The share of manufacturing in GDP is therefore a basic indicator of the significance of the sector in a country’s economy.

manufacturing activity, PMI, purchasing managers' index, manufacturing growth, IIP, industrial production
The manufacturing PMI stood at 56.3, compared to 58.9 in October.

The manufacturing sector has played a stellar role in growth and development of any industrialised country. The emerging and developing countries place manufacturing at the driver’s seat in their journey of economic growth. The share of manufacturing in GDP is therefore a basic indicator of the significance of the sector in a country’s economy.

Also, the traditional stages of development of any country from primary sector to secondary and then to tertiary sector determine the different stages of growth of manufacturing from low to peak and then sliding down, although there remains variations in the growth trajectory as the development process may pursue different routes for economic progress of individual country.

In the recent period, manufacturing holds a share of 14% in India’s GDP. For advanced and developed nations like Germany, the US, South Korea and Japan, the comparable figures are 19%, 11%, 25% and 21%, respectively. For emerging and developing countries like China, Turkey, Indonesia, Russia, Brazil, the corresponding figures are 27%, 19%, 20%, 13%, 9%, respectively, and for low income countries the share is 8%.

Indian policy planners (The Manufacturing Council) had earlier set a target of raising the share of manufacturing to 25% by 2022, but it could remain well-nigh difficult to achieve in two years.

Looking back, it was not a healthy journey for Indian manufacturers consisting of a large group of MSMEs. The thrust on product development by initiating new technologies, new processes for a large group of manufacturers, instead, paved the way for the simple task of assembling the products from the key components imported from abroad.

Technology transfer suffered as well as the initiatives required to pursue the multinationals to set up manufacturing bases in India. It is a fact that the appropriate policy incentives for technology transfer and setting up of new facilities were not available as exemplified by difficulties of doing business in India. In this context, the call for ‘Atmanirbhar Bharat’, ‘Make in India’,’ Vocal for Local’ appear to set the tone, striking the right chord.

It must, however, be appreciated that replacement of imports by indigenising domestic manufacturing of the items requires a definite time-bound policy with necessary nurturing by the government in the initial phases.

Notwithstanding the sincere efforts put in by domestic steel manufacturers, a number of critical steel items continue to be imported. These include casing and line pipes conforming to API=>X 70 for high- premium thread casing pipes and accessories, premium connection tubing with attachments and crossover of sizes 16 or lower.

These pipes, needed for oil drilling operations, are regular requirement by the oil sector. There is also irregular availability of API grades HRC/Plates especially in grades>=X 70 grade in the domestic market. Other steel items regularly getting imported belong to AHSS grades of CR sheets/coils for auto sector, CRGO steel sheets for the transformers, over dimension plates, SS HR/CR width >1250 mm, a number of alloy steel items required for the auto sector, GP sheets with 500 gsm for Grain Silos, to name the major ones.

Solar energy, as a part of renewable energy, is another thrust area of the government. The government is encouraging domestic production of panels. However, reducing imports of wafers, ingots and cells from China is a must and it would necessitate the setting up of polysilicon manufacturing plant to be able to undertake integrated manufacturing of solar panels.

The defence sector has rightly revised the Defence Acquisition Procedure (DAP) to rewrite the offset guidelines, encouraging the domestic units at DRDO, DPSU and ordnance factories and bringing necessary changes in Buy, Buy and Make and Make -I, II and III provisions.

DRDO has identified 108 military systems for domestic production of UAVs, mountain footbridge, modular bridge, armoured and anti-terrorist vehicle, navigation radars and other items.

The realisation of export targets would always enable the domestic manufacturers to explore participation in the Global Value Chain and minimise the threat of economy of scale issues for the new units set up to replace imports.
A list of 101 defence items is facing import ban, of which 69 are to stop imports by December’20.

It is gratifying to note that Indian manufacturers are developing head-hardened rails (JSPL and SAIL), while high value grades R-260/350 and R-1080 grades rails have been developed for high speed and heavy rails.

Recently, the Department of Heavy Industry has increased local content for public procurement of automobiles based on IC Engines (passenger cars, commercial vehicles, two- and three- wheelers) for class-1 local suppliers to 65% and for automobile components (brake linings and pads, helical springs, gas compressors, bearings, air purifiers, horns, safety seat belts, radiators and silencers, suspension and braking parts etc) for IC Engine vehicles to 60% from the earlier 50%.

An incentive scheme for setting up import replacing items at least for the initial phase is very much necessary across different segments to escalate the role of the manufacturing sector. The products rolled must be comparable in quality and cost to penetrate the global market.

The author is former DG, Institute of Steel Growth and Development

(Views expressed are personal)

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