NEW DELHI: Despite the government’s efforts to boost domestic manufacturing, there has not been much progress on this front. The ‘Make-in-India’ initiative was launched in 2014, aiming to increase the share of manufacturing in the economy to 25% and create 100 million jobs by 2020. However, this target has been delayed three times and now it has been shifted to 2025.
As per the government data, manufacturing sector’s share in gross domestic product (GDP) stands at 13% in FY24 as against 15% in FY14. The decadal average comes around 14.5%, still lower than the FY14 figure. As per the annual survey of industries (ASI), 1.72 crore people were engaged in manufacturing sector in FY22 as compared with 1.61 crore in FY 21. In FY24, manufacturing output surged 5.5% as against 4.7% in the previous year.
Anil K Sood, professor at the Institute for Advanced Studies in Complex Choices (IASCC), said the share of manufacturing sector is down from 17.8% of gross fixed capital formation (GFCF) during FY12 to 14.7% during FY22. It peaked to 18.1% during FY16 and has not recovered since then. During the same period, as per Sood, the share of GFCF for the private sector manufacturing is down from 40.8% (peak share in the current series) of total private sector GFCF to 29.3%. GFCF is investments made for asset creation in the economy. Madan Sabnavis, Chief Economist with Bank of Baroda, lays the blame on industrial stagnation driven by poor consumption demand.
Charan Singh, CEO and the founder director of EGROW foundation, attributes the lacklustre manufacturing growth to global economic turmoil since the 2008, unfavourable interest rate cycle, Covid -19, and recent geopolitical tensions.
Govt initiatives
In a bid to give impetus to the sector, the government has opened up several sectors like defence, railways, space, and single brand retail for foreign direct investment (FDI). Policies have been eased to make it easier to do business and attract more investments. The government took steps like the National Infrastructure Pipeline, corporate tax cut, addressing liquidity issues of NBFCs and banks, trade policy measures, and promoting domestic manufacturing via initiatives like public procurement orders and production-linked incentive (PLI) schemes. FDI rose to $71 billion in FY23 from $36 billion in FY14, as per the DPIIT data. Though FDI as a percentage of GDP at the end of FY23 at 2.1% was higher than 1.9% in FY14, it is much below the peak rate of 3.5% achieved in FY09.
On the corporate tax front, concessional rate of 15% was introduced for new manufacturing domestic companies set up after October 2019, subject to the condition that commercial production was commenced before April 2024. Manufacturing in SEZs were given a fillip by extending sunset date for setting up units eligible for 10-year tax holiday to March, 2021.
“Despite incentives, the practical difficulties encountered demand immediate attention of the government to maximise the benefits,” said Shivam Mehta, executive partner, Lakshmikumaran and Sridharan.
Sood stressed on the need for quality jobs in manufacturing sector. “Gig work as delivery staff for aggregator platforms or security guards and housekeeping staff in IT services firms or salespersons is not the solution,” he added.
Lekha S Chakraborty, professor at the NIPFP, suggests the need for sustained public investment in infra and policy certainty against the backdrop of climate change commitments and energy transition for strengthening the manufacturing sector.