The government is laying much emphasis on skill development of the working population. This endeavour must be accompanied by a speedy growth in manufacturing to be able to absorb the skilled workmen
The report on outlook of global economic growth by the World Bank sounds a cautious note. It has blamed disappointing developments in the euro zone, including the rouble depreciation in Russia and periods of stagnation in Japan, together accounting for one-third of the downward revision of global growth. The world growth now stands at 3% in 2015 (0.4% lower than envisaged 6 months back) against 2.6% in the previous year.
For India the report has rightly suggested that stagnant share of manufacturing in GDP, which is the outcome of supply bottlenecks and lack of reforms resulting in infrastructure deficits and slow decision making process, has brought down the growth rates in the economy during 2012-2014. India’s current share of manufacturing is even lower than Sri Lanka, Bangladesh, Vietnam, Indonesia, Malaysia and the Philippines.
The poor performance of manufacturing may also pose a serious challenge to the growing numbers of the work
At the current state of development in India, the role of the manufacturing sector is enormous. The employment-elasticity of this sector exceeds that of the other sectors and the demographic dividend of the country in the next decade can become a reality only if manufacturing sector comes out of its shackle.
The government is laying much emphasis on skill development of the working population. This endeavour must be accompanied by a speedy growth in manufacturing to be able to absorb the skilled workmen. The competitiveness of Indian manufacturing is imperative to achieve a quantum jump in exports and to this extent the easy availability and market driven prices of the basic raw materials has to be ensured. The basic metals under manufacturing (11.3% weightage), of which steel is an important element, would be competitive if the prices of coking coal, iron ore and scrap are reasonable and in tandem with global prices. The government has made a good beginning in introducing auction route for the allotment of offers for coal mine allocation and development.
Manufacturing growth in India crucially depends on infrastructure investment. As most of the infrastructures build in terms of roads, rails, urban and rural infrastructure, irrigation has large externalities, the government must take the lead, while private investment is needed in ports and communication.
There is a strong case for reversal of declining movement of Gross Fixed Capital Formation as a percentage of GDP. In order to fulfill the massive deficits in both public and private investment, policy reforms in labour, speedy implementation of MMDR and Land Acquisition policies (with minor changes to make them industry-friendly) and further reduction in rate of interest would be necessary. The global scenario of declining commodity prices may lead to the indigenous price depression that may sustain additional liquidity flow without fuelling inflation.
This is the most appropriate time for the government to reorient the economic policies of the country strongly in favour of the industry for the sake of income and employment generation and realise the full potential of inclusive growth. The removal of a plethora of impediments for industrial investment would provide the only safe springboard for the country’s growth to much exceed the projected GDP growth in the coming two years.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.