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.
Nice article.
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Thank you for the information about India.
I live in a small country of 10M inhabitants in the EU. The majority of the country’s industries have already been acquired by foreign capital. Some purely national entities exist mainly in the agriculture. We are a small country without natural resources or specific manufacturing knowledge. If gas, wages and taxes are paid /provided by foreign entities it is hard to maintain independence.
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And what about manufacturing, does your country have any tangible product exports? They might have been made by the money of a foreign company, but the taxes collected by the government and employment provided to the locals, in my opinion, is the great upside to it.
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Manufacturing is owned by foreign companies, except for some agricultural firms. We produce what they want to produce. Consequently the customers are secured by the forgeign brand. So it can not be considered stable basis. Once they relocate the assemly lines, we wont be able to sell even if we have learnt their manufacturing methods.
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That’s just so sad. It is really hard to get so much investment in less significant countries of Europe, considering the outsourcing shift towards India and China.
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Very Collective information. In India manufacturing sector need much improvement.
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Thanks Krishna and I agree with you.
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That’s really a good thought!!!!
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Very informative.
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This is very eye opening and informative. Thank you for sharing this information.
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Your post provide great information to one preparing for GDs.😁
Great post anyways😁
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Hehehe, thank you. I’m always glad to be of help. So you’re attending GDs for college placements?
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Yeah😁
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That’s great! I hope you get placed for a decent profile and pay. 🙂
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Thanks for your wishes🙂
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Well done and very insightful. My own nation of Canada has become increasingly more service based economically. We tend to export a lot of raw material and rely on the energy sector for much of our national income as I understand it. One issue we face is the fact that the overwhelming majority of our exports go to America next door leaving us very vulnerable to any ripples in their economy. I think we have less trouble with corruption than many nations do but it seems to me that there is a disconnect between the old and the new in that with the current climate of shedding the societal structures of ages past an ideology of individualism seeps in bringing an attitude of self-interest that can be extremely destructive if not countered. Individual rights and freedoms must go hand in hand with responsibility and integrity if our civilization is to thrive.
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That’s very insightful sir. The result of an extended sense of individualism has been such that we have almost forgotten how to be communal. Personal space is overvalued and overhyped. At the same time, a self aware individual is less likely to be corrupt as he is supposed to have the morally high ground.
All in all, it was nice to know about the economy of Canada. Thank you for that, because in my opinion, a personalized comment from a person living in a country always gives a better idea of how things are than a Wikipedia article about the economy of said country.
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Well done SG. A very sound argument for the future India. I agree with your suggested improvements to rescue the economy. Implimenting them will be almost impossible in the short term, unless you curb the problem of rampant corruption. Change means opportunity for the corrupt as it is for the well meaners and sadly, the former are more experienced.
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True. And somehow, even fate seems to favour the wrongdoers, rarely do they get incarcerated for their crimes. Perhaps in the modern world where things are supposedly more “transparent”, we can curb this problem. Did you ever happen to work in a manufacturing unit?
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No but I have worked with a lot of corrupt people
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LOL. Your wit never disappoints.
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I’m telling the truth but it does sound funny. My book, if ever published, exposes (in a humorous way of course) some of the types I knew in Latin America.
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Would love to read your book when it comes out.
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The publisher tells me, libel might be a serious problem. Just in case I’m into a novel which covers the same area but with other names.
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Majority of manufacturing units in our country are small to medium scale and employ majority of workforce. But most of the policies are aimed at large scale manufacturing giants. Thus, FDI doesn’t come to a majority of manufacturing sector rather to a small section. Hence, even when FDI in manufacturing may be surging, large number of units remain starved of funds or depend upon informal sources of funds. Government policies must be realigned for development, modernization and funding of these small and medium scale manufacturing units. Recently launched MUDRA Yojna aims to do exactly this. More such schemes are needed. The importance of MSME sector in Indian economy is evident from the fact that MSME contribute 45% to the GDP whereas corporate contribute only about one-third of them.
Also, communities rather than individuals are the common feature of Indian economy. This is also partly based on the castes. For example, the famed Bagh block-print textile, a GI-taged product from Bagh in Madhya Pradesh is made by Muslim Khatris of the region, similarly, most of the weavers in Varanasi belong to muslim community, and many more such examples are present.
I came to know all this when I listened to talks by Prof. R Vaidyanathan (recently retired from IIM Bengaluru) and S. Gurumurthy (CA, senior journalist and associated with Swadeshi Jagran Manch) on Indian economy which are available on YouTube. I have provided their professional background as they are associated with RSS and most people would take them for fanatics and propagandists which they are not.
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I have written too much, too long. Have a habit of getting carried away. 😂😬
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It’s perfectly fine Dushyant, I really appreciate high effort comments.
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That’s a very insightful comment Dushyant. A solution that I would like to propose for the said imbalance between large scale and small scale industries is to fragment the investment into parts, so that even small industries can benefit from it. Capitalism always favors the already rich, while it should aim at making poor people who are willing to be enterprising richer too.
It is sadly true how RSS always gets a bad rep in mainstream society. While some may not agree with their views, I’m of the opinion that they make some very valid points when it comes to polity and economy without compromising our fundamental religious and cultural values.
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Yeah, absolutely true. Government needs to consider investment in large and MSME separately. Also, FDI won’t come to MSME, so it will have to be locally funded. This will create a solid, home-grown base for big enterprises to engage and partner with and will also ensure equitable growth and manufacturing trends. Foreign engagements of big units will ensure their high quality output and betterment at technology and R&D which will also percolate to MSME due to open competition.
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Couldn’t have said it better myself.
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Thanks. You are too generous and kind to say so, my friend.
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Your writting skills are damn good. And blog is very informative to all of us 😊
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This was an excellent article. Are you a Professor? http://Www.brilliantviewpoint.com
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Hahaha, no man. Although it is extremely nice of you to say that.
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Well, your article was very well written and thought out in giving us a bit of history and than stating your case! Very good!
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Very informative post✌
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i am so glad. I cam across the blog. From the usual humdrum of love and romance. The topics that you take up are good. There are lot many issues plaguing our company. But manufacturing is the most important. It is the largest employment generating sector. 40% of our GDP comes from this and they employ 60% of our workforce so this is how important it is. Demonetization killed it especially informal sector. Let’s hope for its revival.
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Yeah. Let’s hope. 🙂
And thanks for being so glad, these topics are of great interest to me. I’m glad you like my stuff.
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