This editorial is “Reset the Growth Priority ” published in Indian Express. The article discusses the challenges in India’s growth trajectory. In order to create high-value jobs at scale, India needs the combined strength of both the manufacturing and services sectors.

For Prelims: Gross Domestic Product (GDP), Make in India, Special Economic Zones (SEZs), Budget 2022-23, Faster Adoption and Manufacturing of Hybrid and Electric Vehicle in India (FAME – India), Industry 4.0, Production-Linked Incentive (PLI), PM Gati Shakti- National Master Plan, Bharatmala Project, Sagarmala Project.

For Mains: Growth Drivers of the Manufacturing and Services Sectors in India, Challenges Related to These Sectors, Government Initiatives and Required Reforms for Growth of the Industrial Sector in India.

Discussions on India’s economic future and the tactics needed to meet its development objectives are currently rife. In the middle of these discussions, observers’ attention is drawn to the ambitious goal of India’s economy reaching $5 trillion by 2025. Nevertheless, this objective—which is essentially focused on GDP as a whole—ignores the importance of enhancing the standard of living for the typical citizen and highlights the necessity of refocusing on GDP per person.

What are the Current Challenges in India’s Growth Trajectory?

Reimagining India’s Economic Future:

Raghuram Rajan and Rohit Lamba’s book, “Breaking the Mould: Reimagining India’s Economic Future,” prompts a critical examination of India’s growth model.
It challenges the notion that, in contrast to past trends seen in well established and industrializing nations, pushing the expansion of the service sector ahead of that of the industrial sector can result in sustainable development.

Manufacturing Sector Challenges:

India has encountered difficulties in increasing the proportion of manufacturing sector of the economy, with growth remaining at or below 20%.
This raises concerns about India avoiding the typical stage of growth by transitioning from an agrarian to primarily service-based economy, as well as the sustainability of such a change.

Global Business Service Growth Opportunity:

Rajan and Lamba identify an opportunity for India in the world business service growth facilitated by the sophistication of information technology.
As global corporations increasingly outsource business operations, India might play a big role if it can overcome the scalability barrier.

Employment Crisis and Youth Aspirations:

With an unemployment rate of more than 40%, India is witnessing an employment crisis, particularly among the youth between 15-24 age group.
Aspirations of young workers are high, and the country needs expedited measures to incentivize substantial job creation by private employers.

Service Sector Model Challenges:

While the current service sector in India is growing in high-tech services, employment creation is a concern, particularly in low-value-added, low-skill services.
The sector’s division raises concerns about its potential to provide income streams that are consistent with the aspirations of the youth.

Skill Deficit and Higher Education Quality:

India’s skill deficit poses a significant challenge to the service sector-led model. Despite producing 2.2 million STEM graduates, a majority are considered unemployable due to inadequate training.
To address this, determined investment in higher education is required to generate a qualified workforce for higher human capital sectors.

PLI Scheme and Immediate Job Generation:

The Production-Linked Incentive (PLI) initiative is viewed as an attempt to address the current job crisis by persuading corporations to establish manufacturing facilities in India.
However, concerns exist about the scheme being production-linked rather than employment-linked, and uncertainties about the longevity of businesses after incentive schemes end.

Need for a holistic Economic solution:

To address India’s job shortage, a holistic solution which could incorporates both manufacturing and service sector is required.
Aside from PLI programs, incentivizing private enterprise to scale up is critical, which necessitates land and labor regulation reforms. While these improvements are not fiscally costly, they may meet political obstacles.

Urgency in Addressing Demographic Challenges:

With a median population age of 28, India’s demographic dividend could become a curse if immediate and comprehensive action is not taken.
To achieve long-term economic growth, it is critical to combine high-value-added job creation, regulatory reform, and increasing investment in higher education.

What are the Growth Drivers of the Manufacturing and Services Sector in India?

Manufacturing Sector:
- Government Investment Boost:
  - In the latest budget, Allocated Rs. 2,403 crore for Electronics and IT Hardware Manufacturing and Rs. 757 crore for Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME – India) in 2022-23.
  - Aims to strengthen manufacturing sector and advance electric vehicle technology.
- Enhancing Competitiveness:
  - India possesses key factors essential for a significant industrial push, including a large semi-skilled labor force, government initiatives like Make in India, substantial investments, and a vast domestic market.
  - To further boost competitiveness, the government provides incentives such as free land for establishing bases and uninterrupted power supply, placing India on a global competitive scale.
- Robust Domestic Demand:
  - Indian middle class projected to contribute 17% to global consumption by 2030.
  - The Appliances and Consumer Electronics (ACE) market in India is expected to expand from USD 11 billion in 2019 to USD 21 billion by 2025, indicating a robust demand for manufactured goods.
- Global Hub Potential in Industry 4.0:
  - India’s manufacturing industry is rapidly progressing towards Industry 4.0, characterized by interconnected processes and data analytics.
  - The country’s companies, like pharmaceuticals and textiles, have become global leaders due to a focus on R&D
  - Potential to become global hub for advanced manufacturing through automation and robotics.
Services Sector:
- Services Trade Surplus as a Balancing Factor:
  - The persistent surplus in India’s services trade has historically helped offset the substantial deficit in merchandise shipments.
  - In the fiscal year 2020-21, this surplus reached a notable figure of up to $89 billion.
  - With strategic government interventions and renewed emphasis, there is potential for further growth in services trade surplus, possibly eliminating the deficit caused by merchandise exports.
- Driving Transition to a Knowledge-Based Economy:
  - For propelling India to shift from an ‘assembly economy’ to a ‘knowledge-based economy‘ the services sector played a pivotal role, crucial for the country’s economic evolution and global competitiveness
  - .The services trade surplus acts as a significant driver in this transformation, emphasizing the increasing importance of knowledge-centric activities.
- Skill India Program for Workforce Development:
  - the Skill India program has been initiated to support the growing services sector and enhance India’s global standing,
  - with aim to provide comprehensive training in market-relevant skills to over 40 crore youth by 2022.
  - By investing in skill development, the government aims to create a workforce that aligns with the demands of the evolving services-driven and knowledge-based economy.

What are the Recent Government Initiatives for Growth of the Industrial Sector in India?

Atmanirbhar Bharat Campaign – To cut down import dependence.
Start-up India – To catalyze Startup culture in India
Production-Linked Incentive (PLI) – To scale up domestic manufacturing capability.
Make in India 2.0 – To transform India into a global design and manufacturing hub.
Bharatmala Project – To Improve connectivity in North East India
PM Gati Shakti- National Master Plan – Multimodal connectivity infrastructure project.

What Steps can be Taken to Make the Growth More Inclusive?

India’s large and young population offers great workforce potential. To realize this potential, however, obstacles such as job creation, improving school quality, expanding skills, and increasing labor force participation, particularly among women, must be addressed.
Recognizing private investment as an important driver of economic progress, the Indian government has taken steps to improve the Ease of Doing Business, decrease corporate taxes, provide credit guarantees, and attract foreign direct investment. Continuous changes, notably in land, labor, and logistics, are required to ease company operations even further.
To increase its global competitiveness, India needs diversify its exports, improve infrastructure, stimulate innovation and digitization, and integrate with regional and global value chains.
Despite supportive programs such as PLI, PMP, and Make in India, additional trade liberalization and regulatory simplicity are required for fair competition between indigenous and foreign firms.
To accomplish climate change targets, India has pledged to reduce carbon intensity and increase renewable energy capacity.
While green bonds fund environmentally beneficial projects, solving environmental issues such as air pollution, water scarcity, waste management, and biodiversity loss necessitates more efforts to protect India’s growth and well-being.
Maintaining a stable and low inflation rate boosts Indian confidence and investment. It is critical to prioritize adequate liquidity and credit availability, particularly for small and medium-sized businesses.
The continued expansion of financial markets and institutions will make it easier to save and invest.
By lowering trade obstacles, broadening its export portfolio, and improving overall competitiveness, India can strengthen its worldwide economic links.
Pursuing regional and bilateral trade agreements opens up new market potential for Indian products and services.
Promoting growth, employment, and innovation in critical areas including manufacturing, services, agriculture, and renewable energy is critical for India’s long-term development.
A strategic concentration on these industries, backed up by effective policies, has the potential to generate economic improvement.
To improve economic prospects, there is an urgent need to go outside the dominant information technology and IT-enabled services.
For example, the expansion of the domestic legal services business provides major benefits for Indian lawyers, opening up lucrative opportunities in Europe, Australia, and the United States.
There is a demand to focus on potential areas such as higher education, hospitality, and medical tourism, emphasizing the necessity of diversification.
This strategy change intends to expand the scope of economic growth outside traditional sectors.
The government supports for the services industry to wean itself off government subsidies, claiming that this will increase business competitiveness.
The whole economic landscape can be optimized for sustained growth by channeling subsidy payments to those in greater need.

Conclsuion

India’s economic forecast is positive for fiscal year 2023-24, as government initiatives have institutionalized the economy and provided financial access to previously underserved areas. A systematic approach covering fiscal, monetary, trade, industrial, and institutional policies is required to maintain this favorable trajectory. Implementing this comprehensive approach has the ability to harness India’s immense economic potential, fostering ongoing vigorous growth and propelling the country to prosperity.

Mains Question.

Analyze the difficulties and opportunities offered by the shifting dynamics of the manufacturing and services sectors in the context of India’s economic development. Discuss the role that these sectors have in ensuring equitable and sustainable growth.

UPSC Civil Services Examination, Previous Year Questions (PYQs)

Prelims

Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight? (2015)

(a) Coal production
(b) Electricity generation
(c) Fertilizer production
(d) Steel production

Ans: (b)

Mains PYQ

Q.1 “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (2017)

Q.2 Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis the industry in the country? Can India become a developed country without a strong industrial base? (2014)