Despite efforts, production under the Modi government remains lagging

NEW DELHI: Despite the government’s efforts to boost domestic manufacturing, not much progress has been made in this regard. In 2014, the ‘Make-in-India’ initiative was launched with the aim of increasing the share of manufacturing in the economy to 25% and creating 100 million jobs by 2020. However, the implementation of this target has been delayed three times and has now been postponed to 2025 year.

According to government data, the manufacturing sector’s share in gross domestic product (GDP) in fiscal 2024 was 13% compared to 15% in fiscal 2014. The decade average is about 14.5%, still lower than in fiscal 2014. As per the annual survey industry (ASI), 1.72 crore people worked in the manufacturing sector in FY22 compared to 1.61 crore in FY21. In FY24, industrial production grew by 5.5% compared to 4.7% in the previous year.

Anil K Sood, professor at the Institute for Advanced Studies in Complex Choices (IASCC), said the share of the manufacturing sector has declined from 17.8% of gross fixed capital formation (GFCF) in FY12 to 14.7% in FY22. It peaked at 18.1% in fiscal 2016 and has not improved since then. According to Sood, over the same period, the share of private sector gross appropriations in the manufacturing sector fell from 40.8% (peak share in the current series) of total private sector gross appropriations to 29.3%. GFCFs are investments designed to create assets in the economy. Madan Sabnavis, chief economist at Bank of Baroda, blamed the industrial stagnation on weak consumer demand.

Charan Singh, CEO and founder of EGROW Foundation, attributes the weak manufacturing growth to the global economic turmoil since 2008, unfavorable interest rate cycle, Covid-19 and recent geopolitical tensions.

Government initiatives

In a bid to give impetus to this sector, the government has opened up several sectors such as defence, railways, space and single-brand retail to foreign direct investment (FDI). Rules have been relaxed to make it easier to do business and attract more investment. The government has taken steps such as setting up the National Infrastructure Pipeline, reducing corporate tax, addressing liquidity problems of NBFCs and banks, introducing trade policy measures and promoting domestic manufacturing through initiatives such as public procurement and production-linked incentive (PLI) schemes. According to DPIIT data, FDI increased to $71 billion in FY23 from $36 billion in FY14. Although FDI as a percentage of GDP at the end of FY23 at 2.1% was higher than 1.9% in FY23 2014, they are well below the peak rate of 3.5% achieved in fiscal year 2009.

In the area of ​​corporate income tax, a reduced rate of 15% was introduced for new domestic production companies established after October 2019, provided that they start commercial production before April 2024. Production in the Special Economic Zones received support in the form of an extension of the deadline for determining the number of units eligible for 10-year tax holiday until March 2021.

“Despite the incentives, the practical difficulties encountered require the government’s immediate attention to maximize benefits,” said Shivam Mehta, executive partner of Lakshmikumaran and Sridharan.

Sood stressed the need to create quality jobs in the manufacturing sector. “Giant work as delivery staff for aggregator platforms or as security guards and cleaning staff for IT services companies or vendors is not an option,” he added.

Lekha S Chakraborty, Professor at NIPFP, suggests the need for sustained public investment in infrastructure and policy certainty in the context of climate change and energy transition commitments to strengthen the manufacturing sector.