Relevance: GS-2: Indian Economy and issues relating to planning, mobilisation of resources, growth, development, and employment. Inclusive growth and issues arising thereof.

Key Phrases: China+1’ strategy, LPG reforms, Globalisation, Changing Dynamics of the US-China Relationship, Russia-Ukraine War, New Global Economic Order, Transition from Multilateralism to Bilateralism, Services-led Growth Model

Context:

• India had lost the opportunity to become the manufacturing hub of the world in the 1990s.
• Some recent developments have given India’s manufacturing aspiration a leg up or ‘a second life’ if it utilises the opportunity to the fullest.

Background:

• The global manufacturing shifted from West to East in the early 1990s.
• India was just about to liberalise its economy and was not ready yet to take advantage of the shift.
• China, on the other hand, had opened up its economy earlier and was well prepared to grab this opportunity. It did so in the best possible manner and in less than a decade, it became the manufacturing hub for the world.
• In 2019, as per UN Statistical Division data, China accounted for as much as 28.7 per cent of the total manufacturing output globally (in value terms of $4 trillion). India was ranked fifth behind the US, Japan and Germany with a 3.1 per cent share.
• As India embraced reforms in 1991 and opened up its economy progressively, its industry became efficient and gained competitiveness.
• Exports of manufactured goods increased gradually and by the end of the century, the ambition of India to become a manufacturing power house was rejuvenated. The ground reality, however, was not conducive.

Recent developments:

1. Changing Dynamics of the US-China Relationship:
   • The changing profile of the US-China relationship from ‘co-operating rivals’ to ‘competing rivals’ has triggered a trade war and exposed the excessive dependence of American companies on China for their manufacturing needs.
   • The need to de-risk has become real and urgent for American Companies. This gave birth to what is now called the ‘China+1’ strategy.
   • Global brands are now scouting for alternative locations to manufacture their goods and reduce their dependence on China.
2. Russia-Ukraine war:
   • The Russia-Ukraine war and the ensuing geopolitics are causing a new global economic order to emerge.
   • Experts predict at least two distinct trade blocs –
     • one comprising Russia and China, and
     • the other being the US, Europe and like-minded nations.
3. The transition from Multilateralism to Bilateralism:
   • Globalisation is appearing to be dead now with the rise of nationalist sentiments among the nations.
   • The World Trade Organisation, despite the recent agreement at the 12th Ministerial, is appearing weak, and there are signs of emergence of an era of bilateral trade deals.
   • This means that Western companies may not be able to access the most cost-effective goods and will have to settle for those produced in friendly countries that value human rights, nature, and the dignity of labour.
   • The above developments present India with a great opportunity in manufacturing.

Challenges Pertaining to the Manufacturing Sector in India- in Short

• Underdeveloped Manufacturing Sector
• Weak Infrastructure
• Lack of Certified Factories
• Inadequate Power Supply
• Lack of proper implementation of government schemes etc.

Measures Required to Boost Manufacturing in India- in Short

• Policy interventions to increase worker skills and to increase access to finance for expansion, upgrading, or working capital.
• State specific industrialisation strategies.
• Judicious Export/Import Policy.
• Proper and effective implementation of government schemes.
• A multi-pronged approach should be adopted to support manufacturing with the focus largely on large-scale infrastructure investments.
• Reduction of logistics cost of manufacturing.
• Stable, low cost and uninterrupted power supply
• Skill Development by insuring high-quality vocational training within the education system

Fresh Opportunity for India

• The global economy has evolved a lot in the last 30 years. Today, people are spending more on services especially in the rich world whereas the per capita spending on manufactured goods is declining.
• The choice before India now is whether to cater to middle-income countries’ demand for manufactured products or go along with the wave and offer services to richer nations.
• Experts are of the opinion that as countries get richer, consumers spend more on services than manufactured products. They emphasise that India should not imitate China but instead adopt a services-led growth model.

Impetus to Manufacturing in India- Recent Developments

• Infra Development Projects: For instance, the National Infrastructure Pipeline (NIP) built on a whole-of-government approach, is already in place covering the FYs 2019-20 to 2024-25.
  • The statistics available on India Investment Grid reveal that there are 15887 projects available involving a total project cost of $ 1940.59 billion as on today i.e. 25/06/2022.
  • The National Industrial Corridor Development Programme was launched to facilitate the integrated development of industrial smart cities having plug and play infrastructure along with multi-modal connectivity.
  • Also, a number of Production-Linked Incentive (PLI) schemes have been announced since 2020 for various sectors that incentivise manufacturing with a goal to achieve ‘Atma Nirbhar Bharat’.
• Manufacturing in Warehouses: The Central Board of Indirect Taxes and Customs (CBIC) has brought forward a new and improved version of the programme focused on manufacturing and other operations in bonded warehouses
  • Manufacturing in warehouses results in saving working capital, which is usually scarce in case of small enterprises and helping in better positioning of MSMEs in the international market by shortening the delivery schedule in the global supply chain.
• The Bonded Manufacturing Scheme has been revamped by CBIC to enable organisations gain competitive advantage.
• Custom Rules: Domestic manufacturing within India is also being encouraged through statutory measures like the Customs (Import of Goods at Concessional Rate of Duty) Rules, which has also been amended from time to time to take into account the dynamic needs of the industry and trade.

What should be India’s Economic Philosophy?

• Its immediate priority is to create jobs for millions of youngsters who are coming out of college.
• A services-led growth will be preferable as it will create far more jobs than manufacturing which is increasingly embracing automation.
• With Industry 4.0, the pace of automation will rise further, and the need for jobs will decline.

Way Ahead for India:

• Complete utilisation of the huge domestic market, poised to grow further.
• Its attempt to develop self-sufficiency through ‘productivity-linked incentive schemes’ is the right step forward.
• It can also be a global manufacturing base in select sectors such as auto components, textiles, and leather where it has a strong domestic market, access to a complete value chain, and a good export presence.
• A distinct strategy with a focus on its strengths with respect to manufacturing and its huge demographic dividend will work better for India than a wholesale approach.
• As India is spending very less on Research & Development, it must improve its spending on it. India’s spending is much less than the developed nations which spent between 3-4% of their GDPs.

Source: The Hindu  BL

Mains Question:

Q. Recent developments in international relations and changing geo-politics have given India’s manufacturing aspiration a leg up or ‘a second life’. Discuss with the help of examples. (250 words).