A significant portion of India's quality job creation over the next two decades must originate from the manufacturing sector, asserts Sanjay Kathuria, Visiting Senior Fellow at the Centre for Social and Economic Progress and Co-Founder of Trade Sentinel. In an interview, Kathuria emphasized that while the services sector is vital, it cannot single-handedly address the nation's immense employment demands.
Overcoming Manufacturing Hurdles
Despite ambitious targets, India's manufacturing contribution to its GDP has not reached the desired 25%. Kathuria points to persistent, fundamental issues hindering growth:
- Land Acquisition: Regulations around land remain complex, making it difficult for industries to expand.
- Labor Laws & Skills: Inadequate labor reforms, skill development, and mobility challenges impact the workforce.
- Regulatory Environment: A cumbersome regulatory framework disincentivizes firms from achieving scale.
These factors have contributed to a large informal sector and a 'Missing Middle'—a lack of medium-sized enterprises crucial for supplying larger firms and fostering a robust industrial ecosystem. Kathuria notes that competitor nations, like Bangladesh in apparel exports, boast significantly larger firm sizes, demonstrating the impact of scale.
Policy Pathways for Growth
To attract private investment and boost manufacturing, India needs to fundamentally alter disincentives against firm growth. While recent government efforts towards deregulation are acknowledged, a significant turnaround in private investment and net Foreign Direct Investment (FDI) is yet to materialize.
Kathuria also stressed the importance of trade policy. He described India as a "reluctant liberalizer," arguing that many existing Free Trade Agreements (FTAs) lack the necessary depth, especially with key Asian partners like Japan, South Korea, and ASEAN, from whom India sources many inputs. Lowering tariffs on inputs and pursuing deeper trade relationships are critical.
Furthermore, a strong focus on research and innovation is essential for technology absorption and fostering indigenous advancements, which are vital for long-term manufacturing competitiveness.
Optimism for High-Tech Manufacturing
While challenges remain for labor-intensive manufacturing, Kathuria expressed greater optimism for India's potential in high-tech manufacturing. The country has already seen success stories in sectors like pharmaceuticals, auto components, and mobile phone manufacturing, particularly incentivized by the Production-Linked Incentive (PLI) scheme.
India possesses an "incipient ecosystem" for high-tech industries. By empowering the private sector and supporting R&D initiatives, the nation can establish itself as a hub. Even in complex areas like semiconductors, Kathuria believes India can target specific segments of the supply chain, leveraging its global talent pool in design and partnering with international players.
India Has Not Missed the Bus
Contrary to concerns that India might have missed its opportunity to become a global manufacturing hub, Kathuria believes new geopolitical realities offer a fresh window. "The US and China are proving to be increasingly whimsical and are weaponizing trade. This provides India yet another opportunity on both trade and manufacturing," he stated.
He dismisses the notion that the world cannot accommodate another large manufacturing exporter. Doubling India's merchandise exports to just 4% of global goods exports—up from the current 1.8%—is achievable and necessary to provide quality employment. This focus on manufactured exports, he concludes, is crucial for India to address its most significant economic challenge: job creation.