Since the time India opened up its market and chose a market-oriented economy, the earlier economic driver, the manufacturing sector has been reduced to a laggard. It is claimed by Indian government that India has the fastest growing GDP amongst the big economies. However, Indian economy is characterized by low plant load factor, low agricultural growth, low capacity utilization of the industry, low credit offtake, and low investment. These are reasons that India is experiencing a jobless growth.
The growth rate as shown by the government is relatively high. However, the pattern of the growth is the concern that drives down the employment generation. The primary for such jobless growth is that manufacturing sector is no longer the driver of India’s economic expansion. The productivity of the whole economy should be driven by manufacturing. Services sector cannot replace manufacturing as the self-sufficient employment generator.
The reason that manufacturing is not growing is the disdainful policy paralysis of the subsequent governments. It is only in 2011, that the Department of Industrial Policy and Promotion (DIPP) came up with an industrial policy for the first time after liberalization, although it was never implemented. Thus, it took 20 years since liberalization for the government and its advisory bodies to come up with a plan. The inverted duty structure imposed by the UPA government was the main cause of manufacturing doldrums.
The industrial policy, however, should not be at cross purpose with trade policy. If this happens and it is being the case, the two has been undermining each other’s objectives. The excessive imports are destroying the domestic manufacturing sector. The inverted duty structure is characterized with higher duty for the intermediate goods in comparison to the finished goods. The finished goods often enjoy concessional customs duty. This has resulted high tariffs for the manufacturing goods, which has been the case for last one and a half decades. The industries that are affected most are electronics, capital goods, chemicals, steel, and aluminum.
The only exception is automobile sector as it did not face inverted duty structure and thrived. The government must be prudent in understanding what is good for our economy. If India has to challenge China as a major economic power it cannot neglect the manufacturing sector. The manufacturing sector, if thriving, can produce large amount of jobs that no other sector can match. It is sheer lack of vision and a callous approach by the subsequent governments that decimated India’s manufacturing growth.