Why in the News?

In a recent statement, the Finance Minister highlighted the pressing need for sophistication in India’s manufacturing sector to drive economic growth and competitiveness.

• The sophisticated manufacturing sector provides a conducive environment to enhance the efficiency of producing goods and services.

What is the current state of Indian Manufacturing?

• India’s manufacturing sector’s Gross Value Added (GVA) as a percentage of GDP has shown an upward trend (since 2014), currently hovering around 18%. There is a consensus that to compete on a global scale, Indian manufacturing needs to evolve and embrace sophistication in its processes, technologies, and products.
• India’s Dependency Ratio: The dependency ratio is a measure that compares the number of dependents (people who are either too young or too old to work) to the working-age population.
  • According to the Economic Survey 2018-19, India’s Demographic Dividend will peak around 2041, when the share of working-age,i.e. 20-59 years, population is expected to hit 59%.

Importance of Sophistication in Manufacturing:

• Leveraging the Demographic Dividend: India’s young population and low dependency ratio offer a significant advantage in terms of labor force and consumption. To capitalize on this demographic dividend, there is a strong focus on ramping up skills in the Indian workforce through initiatives like the Pradhan Mantri Kaushal Vikas Yojana (PMKVY).
• Enhancing Productivity and Quality: Embracing sophistication is crucial for enhancing productivity, quality, and competitiveness in the global market. By investing in technology, automation, and research and development, manufacturers can improve efficiency and deliver high-quality products.
• Increasing Share in Global Value Chains: To increase India’s share in global manufacturing and value chains, the government is considering providing policy support. This will help reduce dependence on imports and make India more Self-reliant (Atmanirbhar).
• Attracting Investments: Sophistication in manufacturing can attract significant investments from global companies looking to reduce their dependence on China. According to a Capgemini Research Institute report, 65% of senior executives in the U.S. and Europe plan to increase manufacturing investments significantly in India.
• Unlocking Opportunities in Specific Sectors: Sophistication in manufacturing can help unlock opportunities in sectors such as food spending, financial services, and consumer markets. By 2031, India’s consumer market is projected to double, presenting a $2.9 trillion opportunity.

What are the Challenges hindering the growth of the Sophisticated Manufacturing sector?

• Inadequate infrastructure: Lack of reliable power supply, poor connectivity, and limited access to advanced technologies. Difficulty in obtaining credit, especially for small and medium enterprises (SMEs), to invest in technology upgradation.

• Skill gaps: Shortage of skilled workers trained in modern manufacturing techniques and technologies
• Weak Intellectual Property Rights: Insufficient protection of patents, trademarks, and copyrights, discouraging innovation
• Regulatory hurdles: Complex bureaucratic processes, lack of clarity in policies, and inconsistent implementation

 Government Initiatives and Support

• Make in India Initiative: Launched in 2014, the program aims to transform India into a global manufacturing hub by facilitating investment, fostering innovation, building best-in-class infrastructure, and making doing business easier. It focuses on 25 sectors, including automobiles, aviation, chemicals, and pharmaceuticals.
• National Manufacturing Policy: Introduced in 2011, it aims to increase the share of manufacturing in GDP to 25% and create 100 million jobs by 2022. It focuses on enhancing skill development, promoting innovation, and creating a favorable business environment.
• Production Linked Incentive (PLI) Scheme: It provides financial incentives to boost domestic manufacturing and attract investments in key sectors such as electronics, pharmaceuticals, automobiles, and telecom. It has helped reduce import dependence and increase exports in sectors like telecom and mobile manufacturing

Way Forward:

• Role of Financial Institutions: By providing access to capital, facilitating technology adoption, and offering financial expertise, they can empower manufacturers to invest in sophistication and drive growth.
• Enhanced Strategies: Manufacturers need to prioritize investments in technology, automation, research and development, and skill development to enhance sophistication. Collaborating with financial institutions for tailored financial solutions can help accelerate this transformation.
• Competitive Outlook: As Indian manufacturing embraces sophistication, it is poised to unlock new opportunities, improve competitiveness, and contribute significantly to the country’s economic growth. By aligning with the Finance Minister’s vision, the sector can chart a path towards sustainable success in the global market.

Conclusion: The Finance Minister’s call for sophistication in Indian manufacturing underscores the need for a strategic shift towards innovation, efficiency, and quality. With concerted efforts from stakeholders, including the government, financial institutions, and manufacturers, India can elevate its manufacturing sector to new heights of success and competitiveness.

Mains PYQ:

Q Demographic Dividend in India will remain only theoretical unless our manpower becomes more educated, aware, skilled and creative.” What measures have been taken by the government to enhance the capacity of our population to be more productive and employable? (UPSC IAS/2016)

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