19 Feb 2016 21:59 IST

For Larger Good

Manufacturing, the answer to social issues

Larger social problems, such as unemployment, can be tackled by making India a manufacturing hub

The whole world is now eyeing India, which is full of young minds with strong entrepreneurial capabilities. While innovation and manufacturing go hand in hand, the case is quite the opposite in India, where a major portion of manufacturing sectors, right from steel and cotton to coal and textiles, still use technology that dates back to Lord Mountbatten’s time!

Niladri Dasgupta

Aditya Prakash

The striking example is iron ore and coal. The two commodities are amply produced in India, but since we do not have the technology to process it into a fine final product, we import high quality coal and steel from Australia, South Korea and Russia.

Services sector

The services sector is a temple for innovation, and contributes more than 50 per cent of our country’s GDP. It also employs around 23 per cent of our total population.

But the real question to be asked is whether India can hold its dominance in the services sector in the future, considering technological breakthroughs that are taking place in developing countries such as Indonesia, Vietnam and other south Asian countries. These have already snatched a considerable portion of the BPO services from India.

A manufacturing hub

The only way to hone skills of our knowledge-hungry youth and nurture their inclination of working hard is to improve the manufacturing sector and make India a global manufacturing hub. It is this sector that can solve the problem of unemployment, stabilise our economy and boost economic growth.

India is a unique country with a growth rate of more than 6 per cent and a trillion-dollar economy. But it is still fighting unemployment, unequal income distribution, huge current account deficit and other such issues. Only the manufacturing industry has the capability to employ both skilled and unskilled labour.

In the services sector, on the other hand, there is little place for unskilled labour. The problem of unequal income distribution can also be cured to a considerable extent by manufacturing jobs.

The rationale

Obviously, ‘skill development’ should be high up on the government’s agenda, but we need to keep in mind that this cannot be achieved easily, considering the geographical and psychological diversity of our country.

Unlike the services sector, which is a little conservative in nature in terms of allowing small businesses to flourish, manufacturing will help local vendors and contractors to contribute to the economy, by carrying out responsibilities assigned to them. This, in turn, will again employ skilled and unskilled labour.

No cakewalk

Boosting the manufacturing sector is no cakewalk. There are a lot of things the government needs to address.

First, we need to ask ourselves a few inconvenient questions: why does India lag behind in the manufacturing sector? Why has our industrial development index been struggling between 3 and 5 per cent for more than a decade? Why are our entrepreneurs more inclined towards the services sector? Is it due to lack of infrastructure? Lack of skilled labour? Lack of business-friendly environment? Harsh labour laws? Or is it a little bit of everything?

The real solution here lies in providing a hassle-free environment to the manufacturing sector. Though India has cheap labour, acquiring land for a factory set-up is a huge hurdle and a cumbersome process.

Basic infrastructure, such as electricity, water, and road connectivity, is lacking in small cities, and this is one of the reasons industrialists are reluctant to set up factories there. They cannot build factories in the metropolitan cities either, due to environmental regulations. All these factors neutralisethe cheap labour advantage.

Cheap labour not enough

Low-cost labour alone cannot make the production process cheaper, as their marginal productivity is decreasing in nature. Access to latest technologies is a must for the manufacturing industry; getting a no objection certificate is another issue which entails a complex procedures. The only way to curb it is to maximise the utilisation of technology, like with the recent coal block allocation, which was done through an online bidding system. The Goods and Services Tax can be another accelerator that can steer entrepreneurs towards the manufacturing sector.

In conclusion, we would like to say that though India consists of innovative minds, the immediate problem of unemployment, slow growth of economy and unequal income distribution can be solved by boosting the manufacturing sector. And this is the perfect time to do so.

(The second runners-up are doing an MBA in Business Economics at Delhi University)