By Girish Linganna
The conspicuous lack of fanfare in the run-up to this significant tenth anniversary could suggest that the government acknowledges that extravagant public relations efforts are no longer, effective in concealing the alarming decline of the manufacturing sector.
As Make in India, the flagship program of the Narendra Modi government, marked its tenth year on September 25, an unusual silence prevailed in a government known for its penchant for grand events and celebrations. This silence could suggest that the government now recognizes that extravagant public relations efforts can no longer mask the significantly weakened state of the manufacturing sector.
Amid great excitement, Make in India was inaugurated, and the government set three ambitious objectives for itself: a) achieving an annual manufacturing growth rate of 12-14% b) elevating the manufacturing sector’s contribution to GDP to 25% by 2022 c) generating 100 million jobs within the manufacturing industry by 2022.
The absence of celebrations might be attributed to the fact that no significant milestones have been reached. The manufacturing sector’s growth rate has consistently averaged 5.9% since 2013-14, with the share of manufacturing remaining stagnant at 16.4% in 2022-23. Moreover, the number of manufacturing jobs was cut in half between 2016 and 2021. Over the course of the Make in India decade, the share of manufacturing in the workforce declined from 12.6% in 2011-12 to 11.6% in 2021-22.
Despite the overall underwhelming performance, the government continues to present extraordinary occurrences as typical outcomes. Take, for instance, the case of Apple’s iPhone manufacturing. It’s been reported that Apple has tripled its iPhone production in India, with nearly 7% of devices now being manufactured in the country. The government and its supporters have opted to promote this statistics as evidence of significant manufacturing prowess. However, a cursory examination of the numbers is sufficient to debunk such claims.
The Index of Industrial Production (IIP) monitors the expansion of various industry sectors. In India, the IIP has shown a modest increase, rising from 106.7 in 2013-14 to 138.5 in 2022-23, with an average yearly growth rate of 2.9%. However, a robust manufacturing sector typically demonstrates annual growth rates of 7-8%. Since 2014, many sectors have grappled with challenges and have not met these growth expectations.
The stark reality is that the manufacturing of electrical equipment has seen an average growth rate of -1.8% since 2013-14. Similarly, the computer, electronic, and optical products sector has only grown at an average rate of 2%, while the transport equipment industry has experienced a growth rate of 2.3%, and motor vehicle production has grown at just 1.6%. As for the textile, apparel, and leather industries, which have traditionally been sources of job creation, they have shown growth rates of -0.5%, 1.2%, and -1.8%, respectively.
Widespread unemployment is a pressing issue, particularly with a youth graduate unemployment rate as high as 42.3%. This can be attributed to the fact that the manufacturing sector has not gained the traction it should. While Apple’s expansion of its production operations in India is encouraging, it doesn’t provide the full picture.
Building just a few factories sporadically is not the solution. India requires the establishment of hundreds of new factories spread across various states, producing goods that cater to diverse segments of the population. The Annual Survey of Industries makes it evident that the sector has lost all its vitality.
Under the leadership of the Congress-led United Progressive Alliance (UPA) government, the count of factories expanded by nearly 100,000. However, between 2013-14 and 2019-20, this growth slowed down significantly, with an increase of only 22,000 factories under the Modi government. The manufacturing boom during the UPA era translated into more job opportunities, with factory employment growing at an annual rate of 6.2%. This growth rate dipped to 2.8% during the Modi government’s tenure. Likewise, wages for workers grew at an annual rate of 17.1% under the UPA but declined to 8.4% since 2014.
Under the UPA’s leadership, factory profits were steadily growing at an annual rate of 18.9%, whereas now they have dwindled to a mere 0.6%. In an era before marketing and slogans took precedence over robust policy formulation, the government diligently carried out its responsibilities, and the outcomes are self-evident. There was an increase in the establishment of more factories, the employment of more workers, fair wages for employees, and substantial profits for proprietors. This conducive environment encouraged industries to make significant investments in the sector. Gross capital formation during the UPA averaged an impressive 21.3%, but it has since turned negative, standing at -0.7%.
The absence of investments serves as a clear indicator of dwindling confidence in the government’s policies. A year ago, the finance minister reprimanded industry leaders for their reluctance to invest in manufacturing, urging them to share their reasons for hesitation. She stated, “I want to hear from India Inc, what’s stopping you? We will do everything to get the industry to invest here…” It remains uncertain whether she received a response that day, but what we do know is that the economy is still grappling with a lack of demand. The reason for the absence of investments in manufacturing lies in the insufficient demand for goods and services.
The manufacturing sector might have followed a different path were it not for policy errors such as demonetization and the inadequately designed Goods and Services Tax (GST). The latter had a particularly harsh impact on the narrow profit margins of Micro, Small, and Medium-sized Enterprises (MSMEs). Any meagre signs of recovery were obliterated with the sudden, unplanned COVID-19 lockdown announcement in March 2020. Unfortunately, the government’s response has been lacklustre. Imposing higher import duties and introducing licensing requirements fails to inspire confidence among businesses or foreign manufacturers seeking to diversify their operations as part of their ‘China Plus One’ strategy.
The adverse impact of a weakened manufacturing sector on India goes beyond what the data indicates. Interestingly, one of the most pointed critiques of the government’s economic policies inadvertently came from the External Affairs Minister, S. Jaishankar. In an interview earlier this year, Jaishankar openly acknowledged that China’s economic strength affects how the government addresses border transgressions. This defeatist stance from the minister has repercussions for our national position and the morale of our security forces, and it has prompted questions within the government itself.
Assessing a policy over the course of a decade provides ample time for evaluation. When a program consistently falls short of its objectives, it may serve as an indication that it’s time to set it aside in favour of a more effective approach. (IPA Service)
(The author is a Defence, Aerospace & Political Analyst based in Bengaluru)