India’s Manufacturing Challenge

Context

While India is seeing a big manufacturing phase, the challenge that needs to be addressed is the shift from assembly-based manufacturing to deeper manufacturing.

Key Highlights

• The revival of the manufacturing strategy debate in India was witnessed as the government recently gave approvals for electronics manufacturing and Chinese companies took part in critical power projects.
• India need not follow only the Chinese model; it needs to create a large, competitive and distinctly Indian manufacturing ecosystem.
• In 2025, the value addition in manufacturing in China was estimated at $4.82 trillion, while in India it was $532.92 billion.
• China also represents 27.4% of the manufacturing value addition globally, whereas India’s contribution is approximately 3%.

Why China has a Manufacturing Advantage

• A strength of China is its control of the whole industrial ecosystem rather than just the production of finished goods.
• It has a strong industrial base, with extensive networks of component-manufacturing, machine-making, logistics, industrial parks, ports and testing facilities, making it possible to carry out mass production.
• The manufactured product can require imported machinery, components and technologies.
• This is one of the reasons why India is lagging behind China in manufacturing.
• China has become more powerful in the fields of equipment manufacturing, industrial robots, high-tech manufacturing, new energy vehicles, etc., showing the transition of its industrial production to a technology-intensive direction.

India’s Manufacturing Progress and Advantages

• The electronics industry in India has come a long way, and in the past decade, electronics manufacturing and exports increased significantly.
• Now India is the second largest manufacturer of mobile phones in the world; however, most of this growth is in assembly.
• There are important competitive strengths in India, such as automobiles, pharmaceuticals, textiles, electrical equipment and engineering.
• India is the fourth largest vehicle manufacturer in the world with a strong focus on small cars, two-wheelers, three-wheelers and low-cost mobility.
• The pharmaceutical industry also has a lot more potential in the form of generic drugs, active pharmaceutical ingredients, biosimilars and medical devices.
• The textile industries are still playing a significant role, as the sector has a high level of employment and plays a significant role in industrial production and exports.

From Shallow to Deep Manufacturing

• India’s next task is to build up its own capability in capital goods, components, machines, networks of suppliers, and industrial technology.
• The change of manufacturing policy from single factories to manufacturing clusters.
• Export incentives should increasingly encourage value addition and not just assembly of final products.
• MSMEs require better access to credit, technological support, testing services and better connections with big manufacturing companies.

Way ahead

• India needs to bring down logistics costs, boost the efficiency of ports, streamline customs and guarantee uninterrupted power supply.
• Technical education and apprenticeships and shop-floor skills need to be scaled up to produce an industry-ready workforce.
• The government should encourage strategic collaborations and technology transfer, but not overly rely on foreign suppliers.
• India has to emphasize labor-intensive manufacturing, low-cost engineering and domestic demand and selective technological improvement.
• There are no India vs China debates; it is shallow manufacturing vs deep manufacturing.
• India need not turn into China but if the country can develop its own suppliers, skills, machines and technology, it can strengthen itself into a more employment-intensive manufacturing base that can become more competitive in the global arena.

Source: The Indian Express

MainsPYQ

Q. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (2017)

Download as PDF