Manufacturing Sector Plays an important role in promotion of economic

development of India.
SECTION-A
While big trends drive dramatic technological changes, people are the
key to channelling technology for maximum competitive advantage
During the last 20 years, globalisation has drastically changed the manufacturing
world. No longer bound by geography many companies moved their production
elsewhere solely based on the reduction in labor costs. As a result, moredeveloped countries lost their manufacturing industry, and with it a significant
share of jobs. Today, this trend is slowly reversing, due in part to the increase in
the labor costs in many emerging economies, as well as to a revisiting of the
factors which originally led to relocation.
There is a widespread view that countries no longer need to industrialise in order
to develop. However, in India manufacturing remains the core driver of GDP
growth and direct employment while other sectors particularly many services
sectors are likely to increase employment on the basis of growing demand
flowing from a growing GDP. A nuanced understanding of the direct and indirect
linkages through which diversified manufacturing growth can boost economywide employment is essential.
1. Introduction
As India ponders its chronic unemployment problem, it is useful to set out
a framework for thinking through the contribution of the manufacturing
sector to growth and the generation of employment. There is a widespread
view held more strongly before than after the global economic crisis and
ongoing recession that the global economy has achieved a postindustrial state in which development does not rely on industrialisation.
Evidence cited in support of this view is the large and growing share of
production and employment accounted for by service sectors in most
advanced and many developing countries.
Here, I argue that, In India, manufacturing continues to be the key driver
of rapid economic growth and the associated creation of employment,
both directly and indirectly. A biological metaphor may be useful. While
the largest human organ is the skin, few would argue that this renders key
organs like the heart and lungs of secondary importance. There is
considerable accumulated evidence that manufacturing still functions as
the heart of the economic development process.
The Indian economy is firmly on the path of steady growth. Even during
the last decade when other countries were in the grip of a massive
slowdown, India continued to enjoy a comfortable economic position. This
recent spurt in growth is propelled by radical reforms such as the removal
of restrictions on foreign investment and industrial de-licensing. Tailoring
the EXIM policy to promote exports and aligning the import duties to meet
WTO commitments further contributed to this development. This trend is
expected to continue over the next five years, driven by a favourable

business policy environment in terms of tax cuts, broadening tax base,

and reduced interest rates.
The liberalization of the economy has opened new windows of opportunity
for manufacturing sector. Increasingly the success of manufacturing
industries is dependent on innovations, research and development. It is
critical not only to remain competitive but also, significant advantages can
be gained by developing and commercializing new technologies With a
size of US $ 22 billion, the engineering sector exports stood at US $ 6.6
billion in 2001-02 and imports at US $ 4.9 billion the same year. Indian
engineering manufacturing sector employs over 4 million skilled and semiskilled workers. The engineering manufacturing sector comprises of heavy
engineering (70%) and light engineering (30%). Indias growing integration
with the global economy and the governments recognition that
infrastructure needs to be overhauled are likely to ensure that the trend
rate of growth increases in the next decade.
2. Impact of manufacturing sector on economic development of India
-Incompetence
of
service
sector
to
fulfil
employment
requirements of the country.
The structural transformation of the Indian economy over the last three
decades has been spectacular growth of the services sector, which now
accounts for about 50 per cent of the GDP. However, the rapid growth of
the services sector much before the manufacturing industry attaining
maturity is not a healthy sign. A knowledge -based economy cannot be
sustained in the long run unless it is adequately supported by a growing
manufacturing economy. Moreover, a service economy cannot continue to
thrive on a long-term basis in a country where over 80 per cent of the
population is education below the middle-school level.
Some sectors, such as IT, ITES and pharmaceuticals, will compete globally,
employing perhaps 2% of the population and bringing wealth to many
parts of India. At the same time, around 60% of the population will remain
dependent on the agricultural sector, sharing less than one-quarter of
Indias GDP. Without reform, the agriculture will continue to suffer from
endemic underemployment, low wages and monsoon dependency. This
will result in continued urban migration, but without the development of
an industrial sector this will lead to rising unemployment in the cities.
Recognition that this pattern is unsustainable is growing.
It is estimated that India needs to create 7-8 million new jobs each year
outside agriculture to stay at its current unemployment level of 7 percent.
Manufacturing jobs are ideal for workers transitioning out of agriculture as
service jobs require high level of education and professionalism. The
revival of manufacturing sector can create close to 2.5 Million new jobs
every year.
With the removal of all quantitative restrictions on imports and the falling
import tariffs under the WTO regime, it is all the more important for the
Indian industry to improve its competitive edge. The sheer volume of

international trade with over 70 per cent of the seven trillion dollar market
being in processed manufacturing, strongly indicates the necessity of
developing global competitiveness in this sector.
Thus the above 8% growth of manufacturing industry in India is critical to
ensure healthy balance of income parity, employment generation and
sustenance of growth.
-manufacturing absorbs surplus agricultural labour
The manufacturing sector is crucial for employment generation and
development of an economy. Historically, the development process has
witnessed a trend of people shifting from agriculture to non- farm activities
such as manufacturing and services. This renders manufacturing crucial for
indias development and employment objectives. It is especially true as
agriculture comprises a minor
share of gdp, but account for a
disproportionately large share in employment.
In coming years, India is expected to witness significant demographic
growth and a disproportionate expansion in the working age population. To
absorb much of this labour force, the manufacturing sector would need to
play an important role. Currently, the sector accounts for 12 per cent of
the total employment in the country, well below its true potential.
To boost employment generation in the manufacturing sector, it is
imperative to lay greater emphasis on building human capital-certain
manufacturing industries such as transport equipment, petroleum and
electrical machinery require specialised training that can be met through a
skilled labour force. Apart from focusing on human capital, it is also
essential to promote growth in labour-intensive industries such as wood,
paper products and textiles.
Small and medium enterprises (SMEs) and micro small and medium
enterprises (MSMEs) account for 95 per cent of the total industrial activity
in India and can play a vital role in boosting employment generation.
Estimates suggest, the SME-MSME sector offers maximum opportunities
for self-employment as well as jobs, after the agriculture sector. In
addition, the labour-capital ratio tends to be higher for SMEs and MSMEs.
The National Manufacturing Policy is a positive step; the policy envisages
increasing the share of manufacturing to 25 per cent of GDP by 2022 and
provide employment to 100 million people. The policy is expected to focus
on: (i) improving the business environment and facilitating easy
technology acquisition and development; (ii) providing access to capital
for SMEs; and (iii) enhancing the private sector's role in skill development.
-MSMEs play a significant role in employment generation:
The Micro, Small and Medium Enterprises (MSMEs) have witnessed the
highest
growth rate in manufacturing sector employment in recent years. As per
the

Annual Report FY11 of the Ministry of MSME, Government of India, the

sector is
estimated to employ about 73 million workers in over 31 million units
throughout
the country
3. Snapshot of indias manufacturing sector ( suitable examples)
Manufacturing holds a key position in the Indian economy, accounting for
nearly
16 per cent of the real GDP in FY12 and employing about 12 per cent of
the
countrys labour force. Growth in the sector has been strong, outpacing
overall
GDP growth since the past few years. For example, while real GDP
expanded at a
CAGR of 8.4 per cent over FY0512, growth in the manufacturing sector
was
marginally higher at around 8.5 per cent over the same period.
Consequently, the
sectors share in the economy increased (albeit marginally) to 15.4 per
cent from
15.3 per cent.
Example -1

Rapid growth in the manufacturing sector has been accompanied by

higher
productivity and profitability of Indian manufacturing companies. As per a
study

by the Reserve Bank of India (RBI), productivity of companies was 24 per

cent
higher in 2005 vis--vis 2000. The study also identified that Indian
companies
achieved higher growth in profits during the same period. Although profits
were
expected to decline during the downturn in 2009, manufacturing
companies were
resilient and are returning to the pre-crisis levels or even higherthe
automotive
industry has reported strong growth in business activity on an increase in
domestic demand and exports.
The rising competitiveness of Indias manufacturing companies is reflected
in the
countrys second position in the world in terms of competitiveness as per
the 2010
Global Manufacturing Competitiveness Index (GMCI) prepared by the US
Council
on Competitiveness and Deloitte. The index considers market dynamics
and
policy issues that influence the sector. India is ahead of several developed
and
emerging economies such as the US, South Korea, Brazil and Japan. GMCI
expects the countrys competitiveness score to improve to 9.01 (out of 10)
by 2015
from 8.15 in 2010.

PART-B
INDUSTRY CHOSEN