Can Indian manufacturing sector reach $1 tn goal

The federal government has proposed the ambitious target of $5 trillion for the Indian economy by 2025. Among industries, the goal for the manufacturing sector has been fixed at $1 trillion. But are the targets achievable? Although challenging it’s very much achievable, says Manish Pant.

According to the renowned economic historian Angus Maddison, India together with China used to lead the world in GDP numbers till the 1600s. In fact, despite the socio-political upheavals witnessed during much of its later medieval history, India was the world leader in manufacturing, producing a quarter of the global industrial output until about the mid-18th century. However, colonisation and the resulting deindustrialisation led to the country’s share in the global industrial output decline to a measly 2 per cent by 1900.

The latest available data from the International Monetary Fund (IMF) suggests that the Indian economy is likely to be the fastest growing major economy in 2018-19 and 2019-20. In order to sustain this growth, the spotlight is back on sectors such as agriculture, services and, of course, manufacturing. A joint forum organised by the industry chamber Confederation of the Indian Industry (CII) and federal government’s Department of Industrial Policy and Promotion (DIPP) in November witnessed some serious deliberation around how the world’s most rapidly growing major economy could achieve the $1 trillion manufacturing target by 2025-26.

In his inaugural address at the event, Suresh Prabhakar Prabhu, Union Minister of Commerce & Industry referring to the DIPP working group draft on the roadmap towards a $5 trillion economy asserted, “Even if you have the normal growth rate that we are currently witnessing, we should be able to reach $5 trillion in seven to eight years’ time. There are many favourable factors to make that happen, including domestic demand. Having realised that, I said let’s give a 20 per cent of $5 trillion as the target for the manufacturing industry.” The rest of the contribution would be derived from services, agriculture and industry, per se.

The minister urged, “The mindset of everybody has to change so that we are aligned towards the common objective to be able to achieve that.” He went on add, “There is a lot of action that is going to move towards this part of the world. And if we work properly to take its advantage, we will be one of its biggest beneficiaries”.

The minister said the government was trying to incentivise and encourage Indian companies to compete globally by helping them to improve their export potential. His ministry had drafted several new policies with the objective of improving the ease of doing business, scrapping irrelevant regulations and formulating the concept of growth of GDP in every district of the country. “India has not realised its full potential of exports and cooperation with neighbouring countries like Bangladesh and Sri Lanka and we must strive to work closely with these countries who have managed to become a part of the global value chain in industries like textiles,” declared Prabhu emphasising the importance of building mutually beneficial regional linkages.

ACQUIRING COMPETITIVE EDGE

As the country needs to add momentum as well as maximise local value addition, create economies of scale, capture global market share and fulfill India’s job creation needs, there is a need to imbibe competitiveness. Ramesh Abhishek, Secretary, DIPP cautioned, “If we were not living in an interdependent and competitive world, life would have been much easier. But we are competing everywhere. At home, we are competing with imported products. There is stiff competition in services in exports. We have to bring this issue of competitiveness at the forefront of the public discussion.”

He stressed that the proposed new economic policy would be an important instrument of providing a competitive edge to the industry. “We are now trying to see through the industrial policy how we can get that right connect between our R&D institutions, industry and universities, and have smart policies similar to ones that are being followed in other parts of the world to ensure that it is done.”

Skill development would be an important cornerstone of the policy. “We all know that education and skilling, and in many places reskilling, are the key to any manufacturing economy or for any economy for that matter. Lot of work has been done on skilling in the last four years but we need to take it to another level,” disclosed Abhishek. Attention would be given to strengthening the curriculum particularly in the subjects of science and mathematics.

In his valedictory address Amitabh Kant, CEO of the government think tank NITI Ayog pointed out that the contribution of the manufacturing sector in the 2017-18 fiscal stood at $360 billion, which was 16.8 per cent of the GDP. That made the $1 trillion target for sector about three times its present gross added value. The DIPP working group draft has pegged the required growth rate for GDP at roughly around 11.7 per cent to meet the projections. Similarly, the sectoral gross value-added growth for manufacturing would have to be at a whopping 14.6 per cent.

“To my mind, that’s a challenge but a doable challenge. We have to be extremely competitive across chemicals, automobiles, metals, everything. We to be competitive and that would, one, require size and scale, and, number two, it would require a huge amount of innovation. Thirdly, we must realise that if manufacturing has to grow at 14.6 per cent, YoY, then you have to be a very integral part of the global supply chain. And to my mind this can’t be done till you look at the global market,” averred Kant.

“Something that is very clear is that we must realise that the big bucks are out there in the global market,” he added. Presently, the Indian manufacturing sector derives much of its demand from the domestic market.

IMPORTANCE OF MSME SECTOR

The role of the country’s micro, small and medium enterprise (MSME) sector would be very important in achieving the $1 trillion target. MSMEs contribute to 95 per cent of the enterprises in the country with 40 per cent of the total international exports. Of the around 63 million enterprises in the country, majority fall in that space. Speaking to IPF on the sidelines of the event, Pawan Goenka, Chairman CII Manufacturing Council & Managing Director, Mahindra & Mahindra said that in order to become globally competitive, the sector was required to improve the product quality and enhance technology usage (Read “Viewpoint – Pawan Goenka” next page).

The two-day forum also discussed issues that restricted growth, identified key drivers and conferred on the roadmap ahead. The sectors were shortlisted for the roadmap based on their contribution, size and potential and included textiles, capital goods, pharmaceuticals, metals & mining, food processing, electronics, chemicals and automobiles and automotive. Confabulations were also held on important pillars of manufacturing like skilling, cost of doing business, ease of doing business, R&D and trade policy. The inputs collected would be incorporated CII’s actionable roadmap that would be shared with the key nodal ministries, DIPP and the Prime Minister’s Office (PMO).

Even if you have the normal growth rate that we are currently witnessing, we should be able to reach $5 trillion in seven to eight years’ time. There are many favourable factors to make that happen, including domestic demand.

Suresh Prabhu, Union Minister of Commerce & Industry

We all know that education and skilling, and in many places reskilling, are the key to any manufacturing economy or for any economy for that matter.”

Ramesh Abhishek, Secretary, DIPP

We must realise that if manufacturing has to grow at 14.6 per cent, YoY, then you have to be a very integral part of the global supply chain. And to my mind this can’t be done till you look at the global market.”

Amitabh Kant, CEO, NITI Ayog