India’s Manufacturing Growth Dream: A Critical Analysis

Abstract

The secondary sector has served as an engine of growth for many developing economies across the world, however, unlike most others, India’s secondary sector particularly its manufacturing has failed to ‘take off’. Currently, the manufacturing sector contributes approximately 16-17% to India’s GDP, and its share in world manufacturing is a meager 1.8%. This is in stark contrast to China; where manufacturing contributes 34% to the GDP and is 13.7% of world manufacturing – up from 2.9% in 1991. The rapid growth of its services sector and the near stagnation of its manufacturing sector and agricultural sector has raised questions about the India’s developmental model and its sustainability in the long run. It is evident that India’s development pattern runs counter to the conventional pattern of economic growth as identified by most neo-classical economists. Simon Kuznets envisaged a structural growth of an economy from an agrarian to a predominantly service economy en route the industrial sector. The seminal studies by Chenery and Syrquin (1975), describe this as a natural progression, which occurs as economies grow. In the Kaldorian analysis, this transition in economic activity is typically accompanied by a shift of comparable magnitude in employment from agriculture to industry, which leads to productivity increases in both sectors. This observed counter-factual in terms of sequence of growth and employment as also the apparent imbalance between the two in India could hinder its long-term growth prospects.

       The ‘Make In India’ initiative of the incumbent Modi government, at this juncture, is therefore a welcome step, which is aimed to facilitate investment, foster innovation and skill development in its manufacturing sector. Global giants such as GE, Siemens, HTC, Toshiba, and Boeing are looking for investment opportunities to set up manufacturing plants in India. However we need to assess the feasibility of ‘Make In India’ policy for India in the light of some harsh ground realities. The development of the manufacturing sector is critical to economic growth as it fuels growth, productivity, employment, and provides a thrust to agriculture and service sectors as well. Against this background, this research paper attempts to critically analyze India’s manufacturing sector performance against the emerging global manufacturing landscape- in terms of its size, employment generation capacity, contribution to GVA, exports and future growth prospects in order to identify the favorable trends and impediments which lie ahead and could stall India’s ‘manufacturing growth’ dream.