From the excessive emphasis on services-led growth, in recent times, Indian policy makers have turned their attention to the manufacturing sector. It is also being recognised that for growth of an efficient services sector indigenous development of allied equipment is imperative. The National Manufacturing Policy indeed set the target of raising the share of manufacturing in GDP to 25% within a decade. In order to meet the target, the manufacturing sector has to grow at a much faster rate than the GDP. However, the sector’s performance during the recent past has been quite disappointing. From the peak of 18.4% in 2007-08, manufacturing sector grew by a mere 3.0% in the previous financial year. During April-October 2012-13, it fared even worse, growing at just 1%. Meeting the target share in GDP, therefore, poses an enormous challenge.
The expectation in 1991 was that a liberal external sector regime (trade, investment and technology) would attract foreign companies to make India as their manufacturing base. Not only this did not happen, but there are also views that the simultaneous lowering of trade barriers has hurt India in multiple ways. Importantly, targeted efforts at export of manufactured goods through promotion of SEZs have not yielded the desired results. Even textile, the traditional strength of India is losing out to new competitors. The growing current account deficit has turned out to be the single most important concern of the policy makers. Increasingly FDI is being sought for meeting this gap and not just for its traditional attributes, namely capital, technology and other intangibles. However, no efforts seem to be made to assess the contribution of FDI itself to the gap, either way. Trade deficit which is the main contributor to current account gap, has been increasing alarmingly. From about $110 billion in 2009-10 and $119 billion in 2010-11, it has plunged to $185 billion in 2011-12. There is no let up in the current year and an official paper of the Ministry of Commerce & Industry earlier estimated the deficit to worsen to as much as $282 billion 2013-14. Seen in the context of India’s reserves of $266 billion by the end of December 2012, India would strive to attract large amount of capital inflows. But the question is how would India service such large capital inflows? Further inflows are not the long term remedy. India’s manufacturing sector has to respond dramatically both to reduce import dependence and to increasingly contribute to export earnings.
Obviously, some fundamental change has to take place in the way the manufacturing sector is being approached now. On the contrary, there is a feeling that official policy pronouncements are just wishes which are not grounded in reality and on an understanding of inter-sectoral relationships. In the context of ‘Return of Industrial Policy’ in developmental paradigm especially following global slowdown, there is a need for serious rethink to get India out of the quagmire. Piece-meal, imitative, ad hoc, dis-jointed efforts are unlikely to take India out of the position India finds herself trapped in. The long carefully nurtured pharmaceutical sector which is facing immense challenges both from import of bulk drugs and a liberal patent regime stands in stark contrast with the apparent success of the automobile sector due to measures which are characterised by the traditional components of industrial policy.
To have a fairly good assessment of the present situation globally and nationally and to draw plans for future research, keeping in view India’s bi-lateral and multilateral commitments, the Institute for Studies in Industrial Development is organising a Workshop on 29 March 2013. A few senior and interested scholars from different organisations have kindly agreed to support this endeavour. The theme papers on industrial policy, technology, FDI, employment, etc. prepared by them would provide a backdrop for the discussions at the Workshop.
Prof. K.S. Chalapati Rao
Institute for Studies in Industrial Development
4 Institutional Area Phase II, Vasant Kunj
New Delhi - 110070 INDIA
Fax: +91 91365 34409
Telephone: +91 11 2676 4601
Fax: +91 11 2612 2448