India's Manufacturing Sector: Achievements and Challenges

India’s Manufacturing Sector: Achievements and Challenges

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Table of contents

Context (TH): India’s manufacturing sector has shown strong growth, driven by the success of the Production Linked Incentive (PLI) scheme.

Constitutional Provisions Supporting Manufacturing

Article 39: Promotes equitable resource distribution to prevent concentration of wealth.
Article 43: Encourages State intervention to ensure a living wage for workers.
Article 48A: Directs State to ensure sustainable practices in manufacturing to protect the environment.
Concurrent List: Empowers both Union and State governments to legislate on industries and labour.

Economic Contribution: Accounts for 17% of GVA with the potential to increase to 27% by 2047.
Employment Generation: MSMEs alone employ about 60 million people.
Competitiveness: Key to India becoming a manufacturing hub by integrating into global value chains.
Manufacturing Growth: Output grew by 21.5%, and GVA increased by 7.3% in 2022-23.
PLI Scheme Impact: Boosted production, exports & employment in electronics, pharmaceuticals and textiles sectors.
Sectoral Contributions: Basic metals, chemicals, and food products contributed 58% of manufacturing output, with a growth rate of 24.5%.
Post-COVID Recovery: Sustained growth despite disruptions, indicating resilience.

High Input Costs: Input prices rose by 24.4% in 2022-23, reducing value addition.
Import Dependency: Heavy reliance on imported raw materials increases vulnerability.
Regional Imbalance: Maharashtra, Gujarat, Tamil Nadu, and Uttar Pradesh dominate, accounting for 54% of GVA, limiting industrial spread.
MSME Constraints: MSMEs struggle to scale due to high capital and operational costs.
Low Female Workforce Participation (FWP): Various issues restrict women’s contribution to workforce.

Women’s Participation Potential: The World Bank estimates a 9% increase in output if women’s Female Work Participation.
Promote Inclusive Growth: Integrate MSMEs and women into manufacturing by creating childcare facilities and hostels near factories and offering tax breaks to industries with more female employees.
Boost Domestic Production: Encourage the production of capital goods and essential raw materials to reduce import dependency.
Simplified Tariff Structure: Implement tariffs of 0-2.5% for raw materials, 2.5-5% for intermediates, and 5-7.5% for finished goods to streamline trade.
Develop Industrial Clusters and SEZs: Establish industrial clusters and SEZs in underdeveloped regions to promote economic growth.
Promote Green Practices: Link PLI scheme benefits to eco-friendly manufacturing and support clean energy as part of the NAPCC (National Action Plan on Climate Change) for sustainability.
Ease of Doing Business: Simplify compliance processes and reduce operational costs to attract investment and improve business operations.
Support for MSMEs: Lower capital investment thresholds under the PLI scheme and offer financial and technical support to integrate MSMEs into global supply chains.
Strengthen Infrastructure and Technology: Improve logistics, transportation, and affordable energy access. Invest in automation, AI, robotics, and Industry 4.0.

PLI Scheme: Incentivises production, exports and job creation in sectors like electronics, pharmaceuticals and automobiles.
Ease of Doing Business Reforms: Simplification of compliance requirements and tax regimes.
Make in India Initiative: Promotes domestic manufacturing and attracts foreign investment.