Indian Manufacturing: The hope of job creation
Dr. Amit Kapoor and Anshul Pachouri , 3/8/2013 4:04:17 PM
Currently there are more than 30 million unemployed in India. This puts job creation high on the government’s agenda. We think the manufacturing sector, rather than the agricultural or services sectors, can provide the answer to this challenge.
Agriculture, a traditional source of jobs in India, employs about half of our workforce, but its viability is constrained by declining profits, and the low penetration of sophisticated farming techniques. In fact, over the past decade, services have been the main engine of job creation in India. However, this sector already contributes to more than half of national GDP, and it employs 25 percent of the labor force. In contrast, industrial firms employ only 11 percent of India’s workers. This implies that there is room for growth in the manufacturing sector, compared to the more saturated services and agriculture sectors. The potential of manufacturing is vast: it could create 100 million jobs by 2025, and contribute 22 percent of GDP, according to a report by India’s Planning Commission.
In addition, global manufacturing firms view India’s underdeveloped industrial sector as a viable link in their supply chains. Over the coming decade, India’s middle class is expected to rise from 250 million to 350 million. This will generate new demand for domestic and foreign manufactured goods, driving the expansion of the industrial sector. The car manufacturing sector grew at 8.5 percent over the past five years.
But if India wants to take advantage of the potential that manufacturing offers and is to become a major manufacturer in the global economy, several obstacles to the growth of this sector must be addressed with urgency.
Important barriers to entrepreneurship are a high cost of land, complicated bureaucracies and burdensome regulatory environments. Entrepreneurs must wait anywhere between a few months to several years before opening a manufacturing plant.
Infrastructure development varies across India, and this differential has become a source of comparative advantage for some states and of disadvantage for others. Firms with access to better infrastructure have higher productivity and pay higher wages.
Availability of skilled labor is a major constraint. We see vocational training as an effective way to overcome this obstacle. There are more than 4200 industrial training institutes in India and public-private partnerships have encouraged 115 firms to adopt or create clustered training centers. But the challenge remains in a country where the literacy rate is below 75%. There is an urgent need to establish more educational institutes that help close the skills gap, by implementing exchange programs, internships and research partnerships.
If these obstacles are not addressed, India might miss a big opportunity for job creation and for strengthening its economic growth and development.