India’s manufacturing policy will soon be overhauled with the objective of creating more jobs in an environment where technology is rapidly replacing labour, commerce & industry minister Nirmala Sitharaman said on Tuesday.
The new manufacturing policy will be rolled out in September to coincide with the third anniversary of Make in India and will aim to take the share of manufacturing to a fourth of GDP from the current level of 16-17%. “It’s appropriate that, like Germany, we have a novel and modern industrial policy,” the minister said, adding the idea would be to make India a manufacturing hub. Sitharaman believes this is the time to trim some existing policies, recast some and add some.
By one estimate, 1 million persons across the country enter the workforce every month. India’s manufacturing sector clocked a negative 2% year-on-year growth in February on the back of a tepid 2.9% y-o-y rise in January and a contraction of 1.7% y-o-y in December in the wake of weak demand.
Sitharaman said the new policy would exploit synergies between elements in Digital India and Skill India keeping in mind the increasing automation at factories. Simultaneously, the NDA government’s start-ups initiative too will be tweaked with a view to creating more jobs.
“Foreign players now feel they can set up businesses in India; FDI inflows have picked up,” the minister said, pointing out the states had improved delivery systems prompted by the ease of doing business initiative.
The new policy is being drawn up in consultations with states and envisages a focus on specific sectors. Smaller and medium companies that are not yet ready for automation would be assisted, Sitharaman said. States are being asked to show their level of preparedness to meet challenges to employment generation from increased automation at factories.
In a report in January 2014, Crisil had noted non-farm employment in the country would fall by more than 25% to 38 million in FY 2013-19 compared with 52 million seen in FY 2005-12. “That’s because fewer jobs are being created with the economy treading a lower-growth path and labour intensity is declining across industry and services. As a consequence, an additional 12 million people will be redirected to the farms in FY 2013-19. During FY 2005-12, there was a decline of 37 million in agriculture employment,” the credit rating agency had noted.
NMP 2011 had targeted the share of manufacturing at 25% of India’s GDP by 2022 and planned for 100 million fresh jobs. While manufacturing in peer Asian economies accounts for between 25% and 34% of GDP, in India the share has remained stagnant at around 16% for nearly four decades now.
The National Investment and Manufacturing Zones (NIMZs), an important element of the NMP, has met with limited success. India’s GDP grew at 7% y-o-y in Q3FY17, marginally lower than the 7.4% registered in Q2FY17.
Crisil estimated in April 2012 that the share of manufacturing in India’s GDP was likely to be at about 17% by 2021-22 from 15.4% in 2011-12. “For this to happen manufacturing would have to grow at 10.5% year between 2012-13 to 2021-22. If manufacturing is to account for a quarter of GDP by 2021-22, the sector will have to grow by more than 16% per year, between 2012-13 and 2021-22. Even China, the manufacturing powerhouse of the world, has not achieved such high decadal growth rates in the past,” the agency said.