Problems With the manufacturing sector

Question 1

There are three key challenges.
1. The first is the gamut of internal problems. These are well-known and include ***numerous regulatory roadblocks, unfavourable land and labour laws, inadequate transport, communication and energy infrastructure, among others.

Answer 1

2. Second, India faces stiff competition from South-East Asian and other South Asian countries which may be smaller in size but are better integrated into global supply chains. The space vacated by China is fast being taken over by Bangladesh and Vietnam in the case of apparels; Vietnam and Indonesia in the case of leather and footwear. Indian apparel and leather firms are relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia.

Question 2

3. The third challenge is perhaps the most difficult—global technological and geo-economic changes. The former has led to an increasing quantum and quality of automation at every level of the manufacturing process. Robots are fast becoming the norm on factory floors, and it is only a matter of time before they take over today’s labour-intensive sectors. The latter, meanwhile, points to greater trade protectionism and shortening global value chains
4. India’s failure to get become globally competitive in manufacturing. The problem has always been that India has always been proud of its small and medium industries and the jobs it created. For a long time, a range of products were reserved for the SME sector. Thankfully that reservation has gone now, but the natural inclination to favour SMEs and not large scale manufacturing has remained. Even this government continues that mindset probably because of the assumption that SMEs will continue to create more jobs than bigger manufacturers.
   There are multiple problems with that assumption. SMEs are generally not globally competitive when it comes to production of high value products. Economies of scale and productivity problems plague them. But merchandise exports will not go up unless the products are globally competitive and can take a bite out of the global market. And that is where the policy makers need to focus on when they unveil the new industrial policy, which has been in the works for some time.

Answer 2

How can the government revive manufacturing?

1. building skills among the large population of minimally educated workforce.
2. enacting laws that focus on improving workforce relations together with greater flexibility.
3. improving infrastructure including development of world class clusters.
4. reducing uncertainties and providing stability and predictability in regulatory, legal, environmental, taxation areas.
5. providing access to capital at competitive prices.