It’s
been an year since Make In India initiative has been launched. At the time of
launch there was a workshop held to bring the initiative into action which was
attended by all central ministers including PM Modi, all chief secretaries of
states. Make in India aims at creating 10 crores (100 million) jobs by promoting
the investment in India by both domestic and multinational firms. Rightly so,
Modi has been giving huge prominence to this program at all of his foreign
visits. The recent stats of Industrial output growth at over 9% in the second
quarter of 2015-16 is perhaps a testimony to the fact that the Make In India
program is heading in the right direction. It also mad the hopes of creating
huge number of jobs in the manufacturing industry on the lines of China and
Japan. Considering the slowdown in world’s economy, there are still doubts
about how many jobs does the manufacturing industry can add to. The only
solution to this problem is expanding the job opportunities to service sector
in addition to the manufacturing sector. India still has to learn a lot from
the experiences of other Asian countries in this front.
Traditionally many countries progressed
from agricultural sector to manufacturing sector and from there to service
sector. In most of the developed countries of present, the service sector
expanded only after the expansion/Progression of manufacturing sector. Even in
Asia, in the countries known as ‘Asian Tigers’, viz Hongkong, South Korea,
Taiwan, Singapore and China have followed the same trend. But in the case of
India, it is complete contrast. Even though GDP wise India jumped from
agricultural sector to service sector, the employment opportunities haven’t
risen proportionately. The free trade environment in India encouraged the
service sector instead of the Manufacturing sector. In this way Service Sector
is still like an early bird in India. In our GDP, the share of the
manufacturing sector is very less whereas even though the service sector has
very large share in our GDP, the number of people employed in this sector is
very less.
If we look at the other Asian countries;
In Japan, Taiwan and South Korea, the share of service sector in both the GDP
and generation of employment is as much as 60%-80%. The same is around 35%-45%
in China, Indonesia and Thailand. In all these Asian countries, the share of service
sector in GDP and employment is same whereas India is showing a completely
different trend. Here is a look at why: The share of service sector in GDP is
very high at 58.4% whereas its share in employment generation is as less as
26.4%! This shows that the service sector in India is heavily understaffed.
Added to this, the share of manufacturing industry in GDP is 17% and in
employment it is 12.8%. Therefore crucial task before the government of India
is how to increase the share of the manufacturing sector in GDP and the share
of service sector in employment generation.
India is often compared to China
in the output of manufacturing items. The whole world has already been flooded
with cheap Chinese toys, clothes etc. These items have been ruling the markets
of USA. However, the share of India in the export of manufacturing items in
2012 was meagre 1.6% whereas it was 15% for China. China has given uttermost
importance to industrial development in its villages. China has proved that the
employment opportunities skyrocket once we expand non-agricultural activities
in the villages. China’s specialty lies in encouraging town and village
enterprises (TVE). This has been the major difference between India and China
in terms of financial reforms. TVEs have been increasing the income of village
families by generating non-agricultural employment. The structure, mandate and
working of the SEZs in China is entirely different compared to India. When
there is abundant agricultural output, it drives more demand especially in the
villages. This demand in turn drives in the TVEs in China. Then the markets in
towns help in the expansion of the business of TVEs.
The generation of employment by
manufacturing industry in China is less compared to Japan and other ‘Asian
Tigers’ countries. By 1970, the share of manufacturing sector in GDP reached 36%
and in employment generation to 27% peak levels. The same levels were reached
by 1990 in Taiwan and by 2000 in South Korea. The same are: 33.3% share in the
GDP and 32% in employment generation for Taiwan, 29% and 23.3% respectively for
South Korea. But in contrast, in China
they are just 33% and 16% only. The reasons for this low level of employment have
been: increasing use of machinery due to industrialization, the phenomenal
growth of the technology towards the end of the industrialization era compared
to the beginning, the companies opting for outsourcing of jobs etc. These were
the main reasons for the deviation in the share of manufacturing sector in GDP
and in employment generation.
In current situation it is quite
difficult to increase the share of manufacturing sector. East Asian countries
have already progressed in exports. As previously said, China has been flooding
the international markets with its goods. The world will not tolerate another
China in this regard. The recent comments of the RBI Governor Raghuram Rajan
that it would be difficult to emulate China in developing export oriented
growth model are very much pertinent in this regard. In a world which is still
not yet fully recovered from the grip of recession, it is difficult to increase
the exports in manufacturing sector. The industrial activities migrating to
other countries will not help either. Hence Raghuram Rajan stressed that the
manufacturing industry should rather strive to cater to the demands of the
domestic industry rather than to cater to the exports. He called for ‘Make for
India’ slogan rather than ‘Make in India’. Even China couldn’t expand the
employment in manufacturing sector like the first generation industrialized
countries like Japan, Taiwan did. It is always difficult test for any country
to increase the employment opportunities in the manufacturing sector. This
sector now largely relies on huge investments and latest technology rather than
on the labor workforce. The progress in technology has given way to the outsourcing,
indirect employment in the manufacturing sector as well. The less skilled find
it difficult to get employed in Service Sector compared to the Manufacturing
sector. Had India acted earlier to speed up the industrialization earlier huge
workforce would have directly shifted from the agricultural sector to the
Manufacturing sector and by so the income discrepancies would have come down by
now. Make in India has been able to attract a lot of investment from abroad.
But still it is very much important that this program be reviewed in view of
the changed scenarios.
Two sided approach is need for industrialization.
It is a very important sector for the growth of the country. However there
should be respectful conditions for those working. Productivity has to be
increased. Government has to stipulate relevant financial/labor norms to
achieve the same. It has to work with
the state governments to address the obstacles to the growth of the industry.
Due importance should be given to investments, providing basic amenities,
skills, acquiring land and creating business friendly environment. 95% of the
total industrial activities are being done through small, micro and medium
units. These units have the ability not only to create high number of jobs next
to agricultural sector, but also to expand self-employment. Make in India should
give importance both to industrial output and service sector as one sector
drives the other. Latest communication technology, financial, business, social
services etc should be encouraged in addition to traditional sector like
wholesale-retail markets, hotels, restaurants, transport and storage.
India shouldn’t undermine the
service sector which is having more than 60% of share in GDP. Even though India
has the ability to increase the share manufacturing in GDP and employment, at
the same time it can no longer follow the growth models of Japan, China and
other East Asian countries. Even China couldn’t increase employment in
proportion to its increasing share of manufacturing in GDP. India should move ahead
considering all these factors. It should increase the employment in
manufacturing and service sectors while improving the agricultural sector.
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