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Introduction. Contextual Introduction.
Body. Challenges to emerge as a manufacturing hub. Measures to overcome the challenges.
Conclusion. Way forward.
China produces almost half of the world’s goods. The low cost of manufacturing in China played a huge role in making it the 2nd largest economy. India can become the next global manufacturing hub. Favourable demographic dividend over next 2-3 decades, availability of low cost labour and strong domestic market provides an opportunity for India to turn as a global manufacturing hub.
Challenges to emerge as a manufacturing hub:
- Complex labour laws: The biggest hindrance is the labour laws and reforms in the country. The Global Rights Index (2016), published annually by the International Trade Union Confederation (ITUC), ranked India as one of the 10 worst countries for working people. Large-scale exclusions of workers from labour law, violence and arrests are the reasons for India’s poor performance.
- Complex taxation system: The complex taxation system, a huge amount of paperwork and corruption may be the main cause of worries among the investors. India started out with an overly complex GST, which has dampened investor sentiment and created tremendous compliance burdens on small and medium sized enterprises (SMEs).
- Land acquisition difficulty: Stringent land acquisition laws and inflexible labour regulations make it difficult for India to attract investors in the manufacturing sector. India’s benchmark land acquisition law must be amended to make it easier to buy land for defence and development projects in the fast-growing economy, while also ensuring the rights of farmers.
- Political delays: The biggest concern of policy makers, analysts, and investors related to manufacturing is around political hold-ups. In every session, the working of Parliament is interrupted which delays the approval of important bills.
- Power deficit: Greater availability of power is needed to realise the dream of becoming a manufacturing hub. India is running short of power with a deficit of 5.1%. The Comptroller and Auditor General (CAG) has also recently claimed a loss of $37 billion due to lack of transparency in the allocation of the coal blocks.
- Un-skilled human capital: India lags far behind other nations in imparting skill training. Not too much has changed since then.
Measures to overcome the challenges:
- Government should push further land reforms making it easier and affordable to acquire land.
- Moving from over-protective to Flexible labour laws would help in reducing labour issues.
- Predictable tax regime would allow better pricing and less input cost.
- Investment in infrastructure is must to evolve India into a manufacturing hub.
- Well connected means of transport (road, rail, inland-waterway) to keep transportation cost minimum.
- Development of industrial corridors would attract setting up new industries.
- Innovation is necessary to come up with new technology, new products and new brands.
- Research and development needs to be given focus.
- Harnessing new technologies like Artificial intelligence and making country part industrial revolution 4.0 is important.
Given the potential of manufacturing sector and the need to shift workforce from primary sector, Government of India has come out with ‘Make in India’ initiative to make India global hub of manufacturing, research and innovation. This initiative is undoubtedly an inspiring initiative, which has reduced the risk factors of investing in India for many foreign companies. The availability of skilled labour, a business friendly environment, good infrastructure and low manufacturing cost are some conditions required for the success of the Make in India campaign.