The natural growth of a country happens with a marked shift from being primarily an agrarian economy to an industrial economy and then finally to a services economy. India is an anomaly to this case. After the economic liberalization in 1991, India has leapfrogged from being primarily an agrarian economy to being a services economy. As of 2004, the service industry contributed56% to India’s Gross Domestic Product (GDP) while employing only 28% of the people while on the other hand manufacturing contributed 15% while employing 11.1% of the workforce. So why is the manufacturing industry stagnant and why is the Economy of India an anomaly, let us explore.
After independence, India took to being a closed Soviet style economy. The era is popularly known as the License Eaj. During that era, emphasis was on import substitution industrialization. The consequence of such an approach meant that the only industries available were government controlled one. It was extremely difficult (even close to impossible) for a private player to open up a manufacturing unit. Close to 80 government agencies had to be satisfied before getting a license to produce and even then the production would be regulated by the government.
With subsequent opening up of the Indian Economy in 1991, coupled with the dot com boom in the late 90s, an enormous increase in foreign investment in India and a massive pool of a young human resource, the economy which was earlier primarily dependent on agriculture quickly moved to services. In midst of all this, the one that was ignored largely was the manufacturing sector.
You might be thinking, what’s wrong with being a service based economy if all is running well? The fact is that this set up is not sustainable in the long run without a strong agricultural and industrial base. India has extremely fertile lands with lots of natural resources. We already have a strong agricultural base. The only thing that remains is to have a strong industrial base too. Let us explore some reasons as to why we need to have a strong industry:
- Self Reliance: A strong manufacturing industry is the pedestal for a strong self reliant country. Indigenous manufacturing is essential for pertinently sensitive sectors like defence and this can only happen when the manufacturing capabilities are significantly augmented.
- Boost to Exports: This is extremely important as year after year our trade deficit is increasing. The stick with the shortest end is our trade with China, wherein Chinese imports from India amounted to $16.4 billion or 0.8% of its overall imports, and 4.2% of India’s overall exports in 2014. On the other hand, Chinese exports to India amounted to $58.4 billion or 2.3% of its overall exports, and 12.6% of India’s overall imports in 2014. The influence of China can only be lessened if we stop buying their products, and to do that, we need a strong industry of our own to manufacture such products.
- Infrastructure boost: Opening up of new manufacturing units will lead to better infrastructure being laid out in the region, better rail and road connectivity. It also means betterment of ports to facilitate an increase in imports and exports.
- Reverse Talent Flow: For years, India has been grappling with the issue of ‘Brain Drain’ as more and more technically qualified people have been heading overseas to make a career. If we have a strong industry, we can provide employment to the youth here itself thus avoiding brain drain.
To achieve the said objective, the following steps will need to be taken:
- Infrastructure: There are several infrastructural issues when it comes to manufacturing in the country. From roads, ports, electricity to warehousing &manufacturing, the country faces logjams at multiple levels. For example, manufacturing units in North India face nearly 8-10 hours of power cuts every day during summers. Having to rely upon diesel generators renders our manufacturing uncompetitive, besides being detrimental to the environment. With a plan that endeavors to spur manufacturing in the country, the Government needs to ensure that all bottlenecks are resolved and infrastructure projects are rolled out unhindered and uninterrupted.
- Corruption: Even at the grassroots, corruption needs to stop if we are to become a better country, economically or otherwise. To achieve this, we need better regulations and neutral non biased people without any prior links or grudges to work on business cases.
- Foreign Direct Investment (FDI): The state of the economy before 1991 still deters many foreign players from wanting to invest in India. India ranks 130 out of 190 countries in ease of doing business rank. To curb this, the government has undertaken an initiative known as Make in India which invites players, both domestic and foreign, to invest in India. This sort of trust building is extremely important if we are to change our image in the eyes of the foreign investors.
- R&D: Research and Development is the heart and soul of any endeavor. Without proper R&D in place, we will effectively be importing knowledge at a cost which defeats the principle itself of revitalizing indigenous industry.
In conclusion, it can be said that while the present Indian industry is plagued by issues social, political and economic, there’s still a glimmer of hope for its betterment if proper steps are taken.
Which sector of the economy do you work in? How do you realize its problems and what will you suggest to alleviate said problem? Let me know in the comments section. Also, if you’re not from India, tell me about the economic landscape of your country, I’d love to know. If you are still just a student, then let me know how you would like the economy to be when you join the workforce. Hoping for a good discussion.