In this regard, the “Make in India” campaign launched by the Modi government is a significant step forward. The campaign is aimed at making India a manufacturing hub, as well as attract investments from across the world. There are several factors that could contribute in the long term development of the manufacturing sector.
India has a fifth of world’s youth population. It is important to use this effectively. We need to create more skilled labourers. Public private partnerships can be forged to take skill development to all the corners of our country. Incidentally, while China’s GDP is only 5 times that of India’s, its manufacturing is 50 times that of our country. China has more than 500,000 vocational institutes compared to India’s 10,000. India need more than 500 million skilled workers by 2022 to attain the status of worldwide sourcing hubs transformation of unskilled workforce to skilled workforce is a key challenge.
Increase attractiveness of manufacturing industry
Visa recently announced that it wants to take 100-120 people from eight IITs offering them a whopping salary of $1,40,000 and Rs 22 lakh for domestic jobs. Other top recruiters at top Indian institutions include Google, Microsoft, Cisco, Oracle and Facebook. Very few manufacturing companies are able to offer such high packages. Even for an average Indian student, software companies offer higher package and recruit in droves compared to manufacturing companies. These have made manufacturing industry less attractive.
Reforming the archaic labour laws
According to FICCI, it is India’s obsession with archaic labour policy that drove investors away, hindered employment growth and made Indian companies uncompetitive. We need less number of laws to encourage investments. Rajasthan has tried to break these norms and provided easier laws for hiring and firing people. Similar efforts are needed from other states and centre to boost the investment climate.
The crucial SMEs
If India has to become the sourcing hub of the world, then the part played by SMEs will be very crucial. Recognising this, National Manufacturing Competitiveness Council is empowering the SMEs to achieve growth. Banks should be urged by government to make disbursal of loans to SMEs easier.
Trade zones and smart cities
The best way to encourage investment is by forming trade zones. SEZs played a big role in improving the services sector of India. Similarly, trade zones can help the manufacturing sector. There are 10 new smart cities which are planned under “Make in India” campaign. If trade zones are implemented in these new cities it will be greatly beneficial to the manufacturing sector. China has a model where it has both FTZs (Free Trade Zones) and EPZs (Export Processing Zone). It differentiates both by the rule that in EPZ certain amount of goods produced has to be exported and there is no such rule for FTZ. India could implement a similar model in the new smart cities that are being developed.
States could be divided into different categories based on their speciality and can be pitted against each other. Best performing states in each category can be given special incentives. This will initiate competitiveness among states and can be helpful for economy as a whole.
Tax laws and concessions
India’s tax system is increasingly seen by foreign nationals as complex, lacking consistency and unpredictable. There are multitude of tax reforms like GST that needs to be implemented. The recent tax issue of Amazon with the Karnataka government shows how it is important for us to enact new laws in tune with changing times.
Thus, properly implemented tax laws with labour reforms and better motivation to SMEs will help India in getting foreign investments as well as rekindling entrepreneurial skills in the country. This will define a long term development in the manufacturing sector of the country.