Critically examine the efficacy of state-led interventions in revitalizing India’s stagnant industrial sector.

Why?

In 75 years, India has not been able to industrialise sufficiently. Its manufacturing share in output and employment has always been stagnant and below 20%.

Approach:

• Briefly mention the current status of India’s industrial sector, highlighting its post-COVID-19 recovery signs yet persistent challenges.
• In the main body, outline key State-led Interventions for revitalizing India’s stagnant industrial sector like GST, FDI reforms, PLI Scheme, and infrastructure investments. Next discuss the efficacy of these interventions – both positive outcomes (increased FDI, employment generation, sectoral growth) and challenges (implementation gaps, limited MSME impact, skilled labor shortage, regional disparities).
• Conclude by emphasizing the need for continuous policy adaptation and addressing existing challenges to foster a competitive and inclusive industrial sector.

Answer:

India’s industrial sector has shown signs of recovery post-COVID-19, with the manufacturing PMI indicating expansion. However, challenges like underutilization of capacity, reliance on imports for critical raw materials, and limited job creation persist. The Manufacturing sector’s contribution to GDP remains stagnant at 17%, emphasizing the need for accelerated industrialization.

State-led Interventions to Revitalize India’s Industrial Sector:

• Introduction of Goods and Services Tax (GST) and Corporate Tax Reduction: Aimed at simplifying the tax structure, enhancing ease of doing business, and making Indian products competitive globally.
• Ease of Doing Business Initiatives: Measures to simplify processes, digitize government-to-business interactions, and decriminalize minor offenses.
  • National Single Window System (NSWS) for investors to apply for all central and state level clearances and approvals.
• FDI Policy Reforms: Liberalization of FDI policies across sectors like defence, telecom, railways, etc. to attract more foreign investments.
• Production Linked Incentive (PLI) Scheme: Provides incentives on incremental sales from products manufactured in domestic units, aiming at significant production, employment, and exports growth over five years.
  • An outlay of INR 1.97 lakh crore for 14 key sectors including electronics, pharmaceuticals, and green energy.
• National Infrastructure Pipeline (NIP) and National Monetisation Pipeline (NMP): Investments in infrastructure to spur economic growth and improve industrial competitiveness.
  • The NIP aims to invest $1.4 trillion in infrastructure over five years, reducing logistics costs.
• India Industrial Land Bank (IILB) and Industrial Park Rating System (IPRS): To make land available for industrial use and rate industrial parks for facilitating investor decision-making.
• PM Gati Shakti National Master Plan (NMP): A GIS-based platform for integrated planning of multimodal infrastructure to reduce logistics costs.
• National Logistics Policy (NLP): Aims to bring India’s logistics costs in line with developed countries making Indian products competitive in the global market.
• Udyami Bharat Scheme: Supports the empowerment of MSMEs through various initiatives like MUDRA Yojana, Emergency Credit Line Guarantee Scheme, and SFURTI.
• Special Assistance to States for Capital Investment: Provides long-term zero-interest loans to states for infrastructure development, including for PM GatiShakti related expenditures.
  • An additional provision of Rs. 1,00,000 crore for 2022-23.

Efficacy of State-led Interventions in Revitalizing India’s Stagnant Industrial Sector:

Positive Aspects

• Increased FDI and Global Confidence: PLI schemes and ease of doing business reforms have significantly boosted FDI inflows.
  • FDI in the manufacturing sector increased 76% in FY22 ($21.34 billion) compared to FY21 ($12.09 billion).
• Employment Generation: Government initiatives have led to increased employment in the manufacturing sector.
  • The PLI scheme for electronics resulted in 28,636 new jobs and a 139% increase in smartphone exports over three years.
• Manufacturing Sector Growth: Positive growth trends in Gross Value Addition (GVA) in manufacturing post-COVID-19 disruption indicate gradual recovery and potential revitalization.
  • PLI Schemes realized investments of Rs 62,500 crore till March 2023, creating over 3,25,000 jobs and generating over Rs 6.75 lakh crore in sales.

Negative Aspects

• Implementation Gaps: between policy formulation and its effective implementation on the ground, leading to delays and inefficiencies in achieving the intended outcomes.
• Limited Impact on Small Businesses: While there are efforts to support MSMEs, many small businesses are still facing challenges in accessing finance, technology, and markets.
• Skilled Labor Shortage: Skill India Mission faces challenges in scalability and matching the industry’s evolving needs, affecting the employability of trained individuals.
• Regional Disparities: The benefits of these interventions are not uniformly distributed across India, with certain regions advancing more rapidly than others, exacerbating regional disparities.
• Dependency on Government Support: Excessive reliance on government schemes and incentives may hinder the development of a truly competitive and self-reliant industrial sector in the long run.

State-led interventions are pivotal in revitalizing India’s industrial sector, setting the stage for enduring economic growth and development. By dynamically adapting and refining these policies to meet emerging challenges and global trends, India can bolster its industrial competitiveness.

‘+1’ Value Addition:

• India has been able to increase the value addition in mobile manufacturing to 20 per cent within a period of three years whereas Vietnam achieved 18 per cent value addition over 15 years and China achieved 49 per cent value addition in over 25 years.
• Import substitution of 60 per cent has been achieved in the telecom sector.
• Sectors that are not performing well under PLI include high-efficiency solar PV modules, advanced chemistry cell (ACC) batteries, textile products and speciality steel.