India Next: Charting the Growth Story

The Indian economy is anticipated to be one of the fastest growing economies in the world (IMF estimates India’s GDP to grow at 9.6 per cent in CY22). This is a positive step towards realising our ambition of becoming a $5-trillion economy in the next few years. While there are varying opinions on when we may get there, our original target of FY25 may be a stretch due to the pandemic and its impact on the economy. At the same time, there is a general consensus that the manufacturing sector must play a pivotal role to achieve this goal.

This is reflected not just in the report of the Working Group on the $5-trillion economy (20 per cent of the $5 trillion is projected to come from manufacturing compared to the sector’s 17.4 per cent contribution to the GDP in 2020), but also in the various initiatives taken by the Government of India to boost manufacturing through flagship programmes such as Make in India or the Production Linked Incentive (PLI) scheme. Interestingly, while Covid-19 has slowed our growth journey, it has also caused businesses to focus on supply chain resilience and created an opportunity for India to become a global manufacturing hub. As per a World Economic Forum (WEF) report, this alone can add an additional $500 billion (compare this with our $1-trillion manufacturing ambition) to the Indian economy by 2030. Therefore, there is a clear need to not only be Aatmanirbhar, but also to cater to the export market.

The opportunity in India’s manufacturing sector is immense. So, the big question is around the readiness of our nation to drive a manufacturing-led economic growth story. Can the manufacturing sector drive economic growth over the next decade, similar to how the services sector led growth over the past two decades? Are we ready for this journey? A number of initiatives have been launched in recent times to provide impetus to the manufacturing sector. Continued focus on these schemes for them to become effective and operational in the real sense of the terms would be a good first step in our endeavour. I have identified three such areas.

Labour reforms and employment: Firstly, while manufacturing is expected to boost India’s GDP, one must take a more holistic approach and also consider the impact of this growth on employment generation.

We can no longer afford to replicate the past where we have seen the manufacturing sector actually reduce jobs rather than increase them (as per the CMIE, 27 million people were employed in FY21 compared to 51 million in FY17). India, like other nations, must traverse the path of initially focussing on labourintensive manufacturing and then transitioning to capital-intensive manufacturing. Accordingly, the government must take measures to boost labour-intensive segments of manufacturing (such as food processing, textiles, metals, automobiles and electronics assembly) and labour reforms are critical to achieve this. The government has already embarked upon this journey and brought 29 existing labour laws under four new codes to capture the emerging labour needs. While this is a great initiative to begin with, the right enforcement is equally critical. For example, the government must be proactive in incentivising firms to comply with the code of social security, and bringing in definition clarity on gig-, platform- and selfemployed workers. At the same time, industry-specific policy initiatives are needed to give these segments the necessary boost.

Availability of land and quality of associated infrastructure: High-quality land and associated infrastructure (logistics connectivity, power supply, etc.) promote competitive supply chains and this is critical for manufacturing set-ups to succeed. As per data sourced from the India Industrial Land Bank (IILB), India has over 4,300 industrial parks where over 0.1 million hectare of total land is available. Over 59 per cent of the available land is present in just three states, viz. Tamil Nadu, Gujarat and Maharashtra. Therefore, we need to focus on more inclusive and coordinated development, and planning of large-scale industrial infrastructure. The National Industrial Corridor Development Programme (NICDP) is one such initiative aimed at providing multimodal connectivity with complete ‘plug-and-play’ infrastructure till the plot level, along with building sustainable, future-ready cities. The Gati Shakti programme is another initiative which aims to build the much-needed institutional framework for coordinated development on such large-scale projects. It will now be critical for all relevant institutions and agencies to deliver on these plans in a consistent, coordinated, accountable and time-bound manner. The other pivotal element will be financing these programmes and leveraging the private sector as a source of capital.

Ease of doing business: The third critical factor to enable India’s competitiveness in manufacturing is promoting differentiated ease of doing business for investors. This entails developing investor-friendly policies and helping investors align their businesses with global production networks. The National Single Window System (NSWS), a portal operationalised by the DPIIT, is a good step towards achieving this goal. The next important step would be to onboard the various central and state ministries to ensure coordinated and timely approvals. The production-linked incentives across 15 sectors with an outlay of approximately $37 billion is a very important step in driving India’s competitiveness as a manufacturing hub. Investors across electronics, pharmaceuticals, food processing, solar PV manufacturing and battery manufacturing sectors have shown interest and applied under this scheme.
Our ability to provide a transparent implementation framework, an objective criterion for the disbursement of incentives, and continuity of the policy landscape would build investor confidence. At the same time, we must communicate more with global players and disseminate these policy and process changes. This will allow us to enhance manufacturing-linked FDI, which has historically remained below potential. Yet another element is digital adoption, that is, ensuring that compliance and regulatory elements can move to the digital platform to the maximum extent possible.
If we can maintain a laser focus on these three areas, including introducing newer policy measures and ensuring the implementation of both new and existing measures, we will be well equipped to meet our aim of becoming a $1-trillion manufacturing economy in the near future. I believe that the future is very bright.

The author is chairman, PwC India.