[Answered] “Strengthening the manufacturing industry and increasing domestic demand are key imperatives for job creation and inclusive growth.” Discuss.

Demand of the question
Introduction. Contextual Introduction.
Body. Reasons behind low manufacturing and low demand. Some measures to boost manufacturing and demand.
Conclusion. Way forward.

India has grown at about 7-8 % in recent years. But data and facts shows that Indian growth was jobless and not inclusive. According to Census 2011, the average growth rate of the economy was 7.7 per cent per annum, when it was only 1.8 per cent for employment. 66th round of the National Sample Survey Office (NSSO) data on employment in 2011 revealed that between 2004-05 and 2009-10, only 1 million jobs were added per year; in a period when the economy averaged a record 8.43% growth annually.

Reasons behind the low manufacturing and low demand:

  1. Stagnation in manufacturing output and employment contraction: Less jobs were created due to stagnant manufacturing output and contraction of labour-intensive segment of the formal manufacturing sector. This is due to excessive rigidity in the manufacturing labour market and rigid labour regulations has created disincentives for employers to create jobs. According to world bank study Industrial Disputes Act has lowered employment in organised manufacturing by about 25%.
  2. Service sector driven growth: The biggest employer in India is the Agriculture sector, employing 45% of the population but it contributes only 15% to the GDP, whereas Service sector is the biggest contributor to the GDP but employs less than 30%. IT and Financial services are drivers of service sector growth in last 2 decades however both of these sector are not employment intensive. This is contributing to jobless growth in India.
  3. Import-oriented economy: Excessive imports have been damaging Indian manufacturing industry. India has failed to witness a strong growth in the labour-intensive segment of the manufacturing sector, as it did not move from the import to an export-oriented development strategy. If India had followed Labour intensive goods export-led model like Southeast Asian countries, it would have created many jobs in the MSME sector.
  4. Low demand: Low demand has led to slow economic growth and led to loss of jobs of many due to loss to companies. This is mainly due to less lower purchasing power and concentration of wealth in hands of few.
  5. Infrastructure Bottlenecks: Infrastructural bottlenecks (especially in access to electricity), lack of backward and forward linkages between agriculture, industry and service sector has failed to create jobs and also hindered growth of labour intensive sectors.
  6. MSME problems: The labour intensity of MSME is four times higher than that of large firms. But they face many problems. They have poor access to credit and are plagued by many serious problems which has limited there growth potential.
  7. Skill Mismatch: Indian labour is not skilled as per industrial demands. Lesser skill levels of workers limit them the job opportunities. Also various programs by government like Skill India and stand up India are launched recently only. Industry focussed skills are needed to be inculcated.

Some measures to boost manufacturing and demand:

  1. Labour reforms: Labour Laws should be reformed as due to the stringent Labour Laws Corporates  in India are preferring Capital intensive mode of Production in a country where labour is abundant.
  2. Promoting labour Intensive sectors: Labour intensive sectors like food processing industry, leather industry, apparel, electronics, gems and jewellery, financial services, and tourism etc. should be encouraged. Appropriate subsidies and tax incentives should be given to incentivise them. Make in India initiative a great step forward which will boost the manufacturing.
  3. Strengthening MSME: MSME sector should be promoted and supported. Easing regulations, subsidies will help. Also easy available of credit should be the priority. MUDRA has a potential to create required jobs in India.
  4. Implementing Niti Ayog action agenda: The Action Agenda has provided several good ideas for job creation, including labour law reforms at the state level. The report emphasizes the role of exports in job creation and recommends establishing coastal employment zones (CEZs), similar to China’s special economic zones (SEZs). This agenda must be implemented in letter and spirit.
  5. Entrepreneurship: The focus of economic policy must be on creating an enabling policy for youth to take up entrepreneurship and create more jobs in the market. India does not need five companies worth 5000 crores turnover but needs 5000 companies of 5 crore turnover.

With higher growth rates not having translated into more jobs, the government should formulate a National Employment Policy that takes these trends into account. Expansion of public employment and a national skilling programme could boost employment.

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