Title: Why an Industrial policy is crucial?
Issue: Manufacturing sector growth
Syllabus: General Studies-III - Indian Economy - Industries - Manufacturing Sector
Context: India’s manufacturing sector growth has stagnated in recent times. Even while some of our peer countries have drastically increased manufacturing sector share in their economy
- The share of manufacturing sector in India’s GDP is only 17% even after reforms were introduced since 1991. On the other hand countries such as- Malaysia roughly tripled its share of manufacturing in GDP to 24%, Thailand’s share increased from 13% to 33% (1960-2014)
- Significance of manufacturing growth in a nation’s economy.
- It is core to the growth of a nation’s economy
- Productivity levels in manufacturing are much higher than in either agriculture or services.
- It offers economies of scale, embodies technological progress and generates forward and backward linkages. All of which have a positive effect on a nation’s economy
- Recent times: After 2008, many countries across the world, are trying to revive their industrial sectors. By focusing on few sector-specific industries. (Example: European Union with its automobile sector)
- While in India, marquee programmes such as ‘Make in India’ are being propped up for increasing manufacturing growth. Other measures are directed towards improving ease of doing business, improving infrastructure etc
- However, many have pointed out the lack of a coherent manufacturing policy in India which would reflect the broad objectives
- Why we need such an industrial policy then?
- To coordinate complementary investments when there are significant economies of scale and capital market imperfections
- Industrial policies can bring back focus on industrial training
- Domestic firms can benefit if the state can play the role of organizer of domestic firms into cartels in their negotiations with foreign firms or governments. Example: Like China has done with its domestic firms such as Lenovo, Haier, Huawei
- Industrial policy can avoid competing investments in a capital-scarce environment. (Example: Telecom sector, Aviation sector)
- Industrial policy can ensure that capacity installed is as close to the minimum efficient scale as possible. (Example: In small scale industries. More incentivization to this sector has led to this sector not expanding to take on a bigger role in the economy)
- Industrial policy can facilitate structural changes in the economy. (Example: prevent losing firms in the economy to consumer anymore of the scarce and precious resources (Air India)
- East Asian success story: It was built upon export-oriented manufacturing, employ surplus labour released by agriculture, thus raising wages and reducing poverty rapidly.
- What we can learn from IT sector growth in India? Government took keen interest and invested in the success of this sector by requisite policies, infrastructure for it. (example: investing in education, IT parks, high speed internet, duty free on import, allowing IT companies for establishment under Shops and Establishment Act (low labour regulations) etc)
Takeaway point: If India has to keep up the growth trajectory, then manufacturing sector should be given due importance by formulating policy which takes into account all the factors mentioned before
|#||Previous UPSC Question||Marks||Year|
|1||Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports rather than capital-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports.||10||2017|