Building on the revival of the manufacturing sector

• India is poised for a manufacturing revolution, with policy interventions such as the Production Linked Incentive (PLI) scheme catalyzing growth. The scheme has already begun transforming sectors like electronics, pharmaceuticals, and automobiles by enhancing output, exports, and employment. However, sustaining this momentum and overcoming structural challenges will be crucial for India to establish itself as a global manufacturing hub.

A Promising Start:

• The Annual Survey of Industries (ASI) 2022-23 reflects the manufacturing sector's revival, with output growing by 21.5% and gross value added (GVA) increasing by 7.3% despite challenges like rising input costs.
• The PLI scheme has been instrumental in driving growth across key industries, which together accounted for 58% of total manufacturing output in 2022-23.

Key Challenges

• Rising Input Costs:
  • A significant gap between output growth (21.5%) and GVA growth (7.3%) is attributed to surging input prices, which rose by 24.4% in 2022-23.
  • Dependency on Imports: High import reliance for raw materials underscores the need for a simplified tariff structure and policies that reduce landing costs of essential inputs.
• Regional Imbalances:
  • Industrial activity remains concentrated in a few states—Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh—accounting for over 54% of manufacturing GVA.
  • This uneven distribution limits inclusive growth and underscores the need for broader participation from other states.
• MSMEs and Workforce Constraints:
  • Micro, small, and medium enterprises (MSMEs), contributing 45% of manufacturing GDP, face barriers in scaling up due to high capital thresholds under existing PLI incentives.
  • Female workforce participation remains low, with estimates suggesting that addressing this gap could increase manufacturing output by 9%.

The Way Forward

• Expanding PLI Scope:
  • Include labour-intensive sectors like textiles and leather and sunrise industries such as aerospace and space technology.
  • Encourage domestic capabilities in sectors with high import dependency, such as capital goods.
• Promoting Green and Advanced Manufacturing:
  • Incentivize sustainable practices and investment in research for advanced manufacturing technologies to enhance global competitiveness.
• Reforming Factor Markets:
  • Address constraints in land, labour, and power markets to create a conducive environment for manufacturing expansion.
• Empowering MSMEs:
  • Tailor PLI schemes for MSMEs by lowering entry barriers and aligning incentives with their operational capacities.
  • Foster integration of MSMEs into global value chains through enhanced access to technology and finance.
• Boosting Female Workforce Participation:
  • Develop infrastructure like dormitories and childcare facilities near factories to support women workers.
  • Enact policies encouraging diversity in manufacturing workplaces.
• Realizing India's Manufacturing Potential
  • To achieve its vision of becoming a developed economy by 2047, India must amplify its manufacturing sector's contribution to GDP from 17% to over 25% by 2030.
  • By addressing structural challenges, promoting inclusivity, and leveraging existing policy measures, India can not only position itself as a global manufacturing leader but also drive inclusive and sustainable economic growth.