It may sound ironic that manufacturing and agriculture, the two sectors that remained at the centre of India’s policy discourse and formulation, both before and after economic liberalisation, have found their shares in the gross domestic product (GDP) shrinking through these periods. Services, however, have made strides with much less ostensible policy support. In the case of manufacturing, the policy objective of raising its weight in the economy is demonstrably stated — the latest goal being to up gross value added (GVA) by manufacturing to a quarter of the economy. As regards agriculture, the proclaimed intent is to make it remunerative for those depending on it for income, while ensuring food surplus for the country. It can’t reasonably be expected (or set as a goal) for this primary sector to outpace the economy and raise its share in it.
Manufacturing GVA grew faster than the broader economy in the last four quarters, but only with ample support from a severe post-FY20 stagnation that made the base decidedly favourable, and an incidental dip in input costs. Economists predict a faltering of the sector in the current and the next two quarters, thanks to cost escalation, and a weakening of the base support. To be sure, there isn’t any appreciable rebound of the sector yet, which actually ceded ground in recent years. At constant prices, manufacturing GVA was 16.1% of GDP in FY13, and only declined to 15.8% in FY24. The earlier decades weren’t any different either. This is despite the fact that support measures for the manufacturing industry over the years have been too many. Currently, these include production-linked incentives, import substitution policies, (canalisation, tariff walls, non-tariff barriers), and concessional corporate tax rates for new units.
In addition, sector-specific support is being provided to investments in frontier areas like solar modules, wind turbines, hydrogen electrolysers, semiconductor wafers, and in defence production. The reforms in the fuel/non-fuel mining and electricity sectors, larger government funding of infrastructure, assorted new institutional arrangements for infrastructure financing, and re-modelling of public-private-partnerships are expected to help too. So are the steps to ease logistics, labour market rigidities, and land use policies. Moreover, over 4,420 industrial parks/zones are now spread over 560,000 hectares of land, giving manufacturing units the facilities of ease of doing business, and cost mitigation via government-backed common infrastructure, and single-window approvals. The Cabinet has recently approved 12 new “future-ready industrial cities”.
While the intent behind these policies can’t be lighted, the proximate cause for their sub-optimal outcome is that they have been unequal to the task of addressing the relatively lower level of competitiveness of the domestic industry. More fast-paced reforms of the kind already tried would have produced more tangible results, including in labour-intensive sectors that have underperformed, and now seem to be in graver crisis. Policies that guard against concentration of capacities, and ensuring more even allocation of factors of production ought to be explored.
Downstream industries must not be held hostage to larger upstream units. The current focus on quickly transitioning into higher-end (even capital-intensive) manufacturing cannot be faulted. Future success depends on moving apace with the technological world and innovative zeal. Policy energies are rightly being spent on creating an ecosystem for semiconductor production, making India a global hub of green hydrogen and its derivatives, robotics hardware, and such. Such policies will have multiplier effects, and create jobs across the economic value chain.