For decades China has been the king of manufacturing. Almost all types of goods are produced in the dragon economy and that too at low cost. In 1970, the US manufacturing sector was 25 times bigger than that of China. After just four decades, China is about to become the world's largest manufacturer, overtaking the US. The main reason for the manufacturing boom was the low cost of labour. But now as the Chinese economy is maturing and wages of people increase, China is losing its low wage cost advantage.
As wages rise and China evolves into a high-cost economy, will India be able to fill the vacuum to become the global centre of manufacturing? It seems India is gradually moving towards manufacturing with the Government announcing multiple reforms and policies in the sector. But a lot more needs to be done on this front.
For starters - India needs to improve labour productivity. Although India has a young and booming demography, and labor cost competitiveness, the labour productivity in India is lower than that of developed nations or even other BRICS nations. Raising the manufacturing sector share of the GDP from 15% to 25% will only happen with an increase in labour productivity. Low labour cost alone will not do the trick. In China, productivity has grown at a higher rate than the increase in labour costs over the last decade.
Secondly, India needs to focus more on exports if the sector has to grow in the region of 12-14% over the medium term. Third - India needs to get the power sector issues sorted out as energy costs have a major impact on the manufacturing sector. Fourth - The country needs to improve its port infrastructure which is critical for transporting goods.
The Government of India has announced a National Manufacturing Policy with the objective of enhancing the share of manufacturing in GDP to 25% within a decade and creating 100 million jobs. The National Investment & Manufacturing Zones (NIMZs) are an important instrument of the manufacturing policy. The NIMZs are envisaged as integrated industrial townships with state of the art infrastructure, land use on the basis of zoning, clean and energy efficient technology, necessary social infrastructure, skill development facilities etc. The intensions of the policy are good. It is hoped that the implementation is also smooth to propel India into the next stage of growth.