To promote inclusive growth, India must build a labour-intensive manufacturing sector
In the early 1970s, Shenzhen in China was a large village with fertile agrarian land. Today, it is the world's largest manufacturing city with a population of over 12 million. Vast foreign investments in manufacturing have enabled Shenzhen to emerge as one of the richest cities in the world. Apple iPads and iPhones are assembled here and the Taiwanese electronic component manufacturer, Foxconn City, employs over 2,30,000 workers at one location.
At a time when the Indian economy has witnessed its sharpest slump in industrial production, several analysts are predicting a big upturn in American manufacturing that will reverse much of the outsourcing of the last 20 years and bring back industries that had migrated overseas. Back with severe cost-cutting and new technologies, Ford, Siemens, Hyundai, Volkswagen are making themselves cost competitive. A strong manufacturing sector has become the centre piece of Barack Obama's proposal for 'an economy built to last'.
What are the lessons for India? A strong, vigorous and dynamic manufacturing sector has to be central to India's economic growth. The future of India's growth process lies in the dynamism of its manufacturing sector. If India has to grow at rates of 8-9% per annum over the next three decades and create jobs for its young population, the manufacturing sector must grow at 14-15% per annum on a sustained basis.
Despite the recent rapid growth, most of the manufacturing jobs have continued to be in the informal sector, which is characterised by extremely low productivity and poor wages, sans labour laws. The small informal firms in India employ 40% of our workforce as compared to only 4% in Korea and 5.8% in Japan.
In sharp contrast to Japan, Korea and China, where the manufacturing sector provided impetus and dynamism to the economy, India's growth has been driven by services. In the case of China the share of manufacturing as a component of GDP is around 42%, in South Korea around 30%, whereas in India it has remained stagnant at 16%. India cannot grow on the back of agriculture. In fact, no country in the world has done this. We need a second Green Revolution but disguised employment has to be radically reduced to allow enhan-ced productivity. Economic development in essence is about shifting people from sustenance farming to manufacturing and urbanisation is the spatial manifestation of this shift.
We are passing through a window of demographic transition that rarely happens in history. We will be adding nearly 138 million to our working age population by 2021-22. This is an astonishing number and manufacturing must catalyse large-scale employment opportunities. Manufacturing in India has been constrained by two critical factors — lack of global size and scale of physical infrastructure and redundant and outdated labour laws, which have no relevance in today's age and time.
The recently announced National Manufacturing Policy (NMP) aims to raise India's share of manufacturing from 16% to 25% by 2021-22 and create additional employment of 100 million jobs. This implies that the manufacturing sector must grow at rates of 16% per annum on a sustained basis between 2012-13 and 2022-23. Even China with its single-minded commitment to manufacturing has not been able to achieve these growth rates.
A recent study by Crisil, "India's National Manufacturing Policy: Achievable Goals?" has analysed that if manufacturing growth is raised from 8.1% per year in the last decade to 10.5% per year from 2012-13 and 2021-22 it would create additional emp-loyment of around 19 million jobs. Only if the pace of decline in employment intensity in manufacturing is halved we would be able to create another 50 million jobs. Thus almost 70% additional jobs will come from policy measures which will provide impetus to employment intensity. Therefore, employment generation from manufacturing will be a consequence of both manufacturing growth and enhancement in employment intensity. This necessitates skill development on a vast scale and flexible labour laws.
India's archaic labour laws are the most rigid in the world. They protect workers, not jobs, and adversely impact economies of scale and investments. There are a plethora of inconsistent labour laws — almost 47 central laws and 157 state regulations that overlap. India has followed job protecting strategies rather than employment enhancing measures. Businesses need flexibility in managing their labour under changing market conditions. We need to institutionalise job mechanisms — loss insurance, direct cash support, retraining and redeployment.
India's manufacturing must focus on being employment intensive. It has several advantages — a large growing and expanding domestic market, modern manufacturing techniques, a highly advanced progressive private sector and the sharp rise in labour wages in China. Several initiatives need to be quickly translated into reality to boost India's manufacturing competitiveness.
The rapid implementation of the Dedicated Freight Corridors along eastern, western and southern regions will sharply reduce logistic costs and enhance freight movement capacity; a uniform goods and services tax and a direct tax code, providing job training through skill deve-lopment and bringing global scale to production through the NMP will provide impetus to India becoming a manufacturing nation. India must seize this opportunity.
The writer is CEO and MD of the Delhi-Mumbai Industrial Corridor Development Corporation.
In the early 1970s, Shenzhen in China was a large village with fertile agrarian land. Today, it is the world's largest manufacturing city with a population of over 12 million. Vast foreign investments in manufacturing have enabled Shenzhen to emerge as one of the richest cities in the world. Apple iPads and iPhones are assembled here and the Taiwanese electronic component manufacturer, Foxconn City, employs over 2,30,000 workers at one location.
At a time when the Indian economy has witnessed its sharpest slump in industrial production, several analysts are predicting a big upturn in American manufacturing that will reverse much of the outsourcing of the last 20 years and bring back industries that had migrated overseas. Back with severe cost-cutting and new technologies, Ford, Siemens, Hyundai, Volkswagen are making themselves cost competitive. A strong manufacturing sector has become the centre piece of Barack Obama's proposal for 'an economy built to last'.
What are the lessons for India? A strong, vigorous and dynamic manufacturing sector has to be central to India's economic growth. The future of India's growth process lies in the dynamism of its manufacturing sector. If India has to grow at rates of 8-9% per annum over the next three decades and create jobs for its young population, the manufacturing sector must grow at 14-15% per annum on a sustained basis.
Despite the recent rapid growth, most of the manufacturing jobs have continued to be in the informal sector, which is characterised by extremely low productivity and poor wages, sans labour laws. The small informal firms in India employ 40% of our workforce as compared to only 4% in Korea and 5.8% in Japan.
In sharp contrast to Japan, Korea and China, where the manufacturing sector provided impetus and dynamism to the economy, India's growth has been driven by services. In the case of China the share of manufacturing as a component of GDP is around 42%, in South Korea around 30%, whereas in India it has remained stagnant at 16%. India cannot grow on the back of agriculture. In fact, no country in the world has done this. We need a second Green Revolution but disguised employment has to be radically reduced to allow enhan-ced productivity. Economic development in essence is about shifting people from sustenance farming to manufacturing and urbanisation is the spatial manifestation of this shift.
We are passing through a window of demographic transition that rarely happens in history. We will be adding nearly 138 million to our working age population by 2021-22. This is an astonishing number and manufacturing must catalyse large-scale employment opportunities. Manufacturing in India has been constrained by two critical factors — lack of global size and scale of physical infrastructure and redundant and outdated labour laws, which have no relevance in today's age and time.
The recently announced National Manufacturing Policy (NMP) aims to raise India's share of manufacturing from 16% to 25% by 2021-22 and create additional employment of 100 million jobs. This implies that the manufacturing sector must grow at rates of 16% per annum on a sustained basis between 2012-13 and 2022-23. Even China with its single-minded commitment to manufacturing has not been able to achieve these growth rates.
A recent study by Crisil, "India's National Manufacturing Policy: Achievable Goals?" has analysed that if manufacturing growth is raised from 8.1% per year in the last decade to 10.5% per year from 2012-13 and 2021-22 it would create additional emp-loyment of around 19 million jobs. Only if the pace of decline in employment intensity in manufacturing is halved we would be able to create another 50 million jobs. Thus almost 70% additional jobs will come from policy measures which will provide impetus to employment intensity. Therefore, employment generation from manufacturing will be a consequence of both manufacturing growth and enhancement in employment intensity. This necessitates skill development on a vast scale and flexible labour laws.
India's archaic labour laws are the most rigid in the world. They protect workers, not jobs, and adversely impact economies of scale and investments. There are a plethora of inconsistent labour laws — almost 47 central laws and 157 state regulations that overlap. India has followed job protecting strategies rather than employment enhancing measures. Businesses need flexibility in managing their labour under changing market conditions. We need to institutionalise job mechanisms — loss insurance, direct cash support, retraining and redeployment.
India's manufacturing must focus on being employment intensive. It has several advantages — a large growing and expanding domestic market, modern manufacturing techniques, a highly advanced progressive private sector and the sharp rise in labour wages in China. Several initiatives need to be quickly translated into reality to boost India's manufacturing competitiveness.
The rapid implementation of the Dedicated Freight Corridors along eastern, western and southern regions will sharply reduce logistic costs and enhance freight movement capacity; a uniform goods and services tax and a direct tax code, providing job training through skill deve-lopment and bringing global scale to production through the NMP will provide impetus to India becoming a manufacturing nation. India must seize this opportunity.
The writer is CEO and MD of the Delhi-Mumbai Industrial Corridor Development Corporation.
-TOI
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