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State Specific Industrialization Plans to Boost Manufacturing
COVID 19 pandemic has exposed vulnerability of global value chains to overdependence on China. Hence there is an increasing push towards diversification of supply chains from nations.
3 factors which are pushing this diversification are:
- Geopolitical tension between China and USA
- Apprehension of dependence on China for essential goods like medicines
- Reducing over-reliance on China for supply chains
Multiple countries like Japan, Australia, USA are pursuing this. Countries like India, Vietnam are possible beneficiaries of this relocation. India’s Atmanirbhar Bharat Abhiyan is aimed at attracting such companies.
Challenges to manufacturing in India:
India’s manufacturing has underperformed as seen in following trends:
- Share in GDP at 15% in 2018 as against the target of 25% by 2022. China has 30% of GDP as manufacturing share
- Average annual growth rate of 7% against target of 12% since liberalization in 1991. Chinese manufacturing grew on average at nearly 11% annually after 1978.
- India is 6th in manufacturing output whereas China is 1st in the world.
- India is not in the top 10 manufacturing exporters who contribute 83% manufacturing exports. China meanwhile contributes 18% and is second to the EU.
Constraints faced are:
- Deficient infrastructure – Roads, railways, airports, electricity, water etc
- Unpredictable tax policies
- Non conducive regulatory environment – Rigid labour laws, licensing delays
- High cost of industrial credit
- Poor skills of workforce
- Land acquisition delays
- Delayed and costly contract enforcement
- Low R&D investment
- Restrictive trade policies
These have prevented large scale FDI(Foreign Direct Investment) into India
State specific industrial policies as a solution:
Addressing constraints need active participation of states in areas like land acquisition, licensing, regulation etc. Hence state specific industrial policies in coordination with the centre will be a lasting solution.
Manufacturing is currently concentrated in Tamil Nadu, Karnataka and Uttar Pradesh. Land being an important factor may be the reason for concentration of manufacturing in these large states. Yet other large states with low manufacturing activity are Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, Telangana, and West Bengal. Reasons for low manufacturing activity in these states have to be addressed and state specific plans have to be developed. In these plans, states and centre have to coordinate for effective policies.
Strategy group proposed for electronics manufacturing is a good approach. In this representatives from centre, all states and industry will be present to share ideas and best practices. This can be expanded to all manufacturing sectors.
Self reliant India needs manufacturing growth for jobs and growth. Cooperative federalism framework through state specific plans can be the solution for the same.
- Manufacturing share of GVA in India has stagnated. Discuss constraints for manufacturing in India? What steps are needed to promote manufacturing in India? [15 marks, 250 words]