• UGI USER
  • Feb 06, 2024
  • 23 Likes
  • 0 Comments

ENHANCING ECONOMIC GROWTH AND THE MANUFACTURING SECTOR

Syllabus: GS3: Modifications to Industrial Policy and Their Impact on Industrial Development.

Primary News:

  • The 10-year review by the Finance Ministry outlines India’s economic growth trajectory and projects a strong GDP expansion of almost 7% in 2024–2025.
  • The editorial emphasises that in order to maintain this growing pace, governmental interventions and ongoing efforts are required.

Prospects for Economic Growth:

  • As to the review, India’s GDP is expected to attain $5 trillion in the next three years and might perhaps reach $7 trillion by 2030, making it the third largest economy globally.
  • The report identifies two growth phases: pre-2014, with structural impediments, and post-2014, with transformative growth policies led by the Prime Minister.

Determinants of Economic Growth:

Natural Resources: 

The quality and quantity of natural resources significantly impact a country’s economic development trajectory.

Capital Formation: 

Essential for economic growth, capital accumulation forms the cornerstone of development efforts.

Foreign Capital: 

Early-stage development often relies on foreign assistance, including aid and foreign direct investment (FDI), to fuel growth.

Population Growth: 

A growing population can contribute to economic output by expanding the labor force, provided there are opportunities for productive employment.

Education and Health:

Investments in education and healthcare are pivotal for fostering economic development and human capital formation.

Technological Progress:

Advancements in technology and the adoption of innovative production techniques drive substantial increases in per capita output and overall economic growth.

Challenges in Economic Transformation:

  • Structural constraints such as tardy decision-making, ill-targeted subsidies, and a large informal sector hampered pre-2014 economic growth.
  • Post-2014 reforms have rejuvenated the economy, fostering longer and stronger economic cycles and positioning India as the fastest-growing G-20 nation.

Way forward:

  • Despite commendable growth projections, there is a need for a wider private investment revival and broad-based consumption rebound.
  • A shift towards an inclusive welfare approach is advocated to expand the middle class and reduce dependency on handouts, fostering meaningful and equitable growth.
  • Policy reforms in education, healthcare, and compliance mechanisms, particularly at the sub-national level, are imperative to accelerate growth.
  • Addressing flaws in reforms like GST and revisiting blunt policy tools such as import licenses and price controls are essential to enhance market predictability and openness.

Manufacturing Sector Development

Context :

  • The government’s efforts, exemplified by the Padma Bhushan conferred on Foxconn’s CEO, underscore its commitment to bolstering the manufacturing sector.

Challenges in Manufacturing:

  • Inadequate Tech Infrastructure: The Lack of technology – based infrastructure, including communication and transportation, hampers manufacturing competitiveness.
  • Limited Access to Credit for MSMEs: Micro, Small, and Medium-sized enterprises (MSMEs) struggle with

limited access to credit and face higher working capital costs compared to larger industries.

  • Skilled Labour Shortages: The manufacturing sector grapples with a shortage of trained and skilled labor, hindering its growth potential.
  • Complex Regulations and Supply Chain Issues: Complex regulations, such as licensing and auditing requirements, pose burdens for businesses, while poor supply chain management leads to inefficiencies and increased costs.
  • Competition and Imports: India’s manufacturing sector faces stiff competition from other countries, challenging domestic businesses’ ability to compete globally. Additionally, heavy reliance on foreign imports for various materials adds to the sector’s challenges.
  • Infrastructure and Electricity Challenges: Telecom communication facilities are limited mainly to urban areas, and many State Electricity Boards struggle with financial losses and inadequate infrastructure, impacting manufacturing operations.

Various Initiatives for the development of Manufacturing Sector in India:

Production-Linked Incentive (PLI): Incentive scheme to boost domestic manufacturing by providing financial rewards based on incremental production in specific sectors.

PM Gati Shakti- National Master Plan: Infrastructure project aimed at enhancing multimodal connectivity across the country for efficient transportation of goods and people.

Bharatmala Project: National highway development initiative focused on constructing and upgrading road networks to improve connectivity and logistics efficiency.

Start-up India: Program to promote entrepreneurship and facilitate the growth of startups by providing support, funding, and simplifying regulations.

Make in India 2.0: Renewed initiative to encourage domestic manufacturing and attract foreign investment through policy reforms and infrastructure development.

Atmanirbhar Bharat Campaign: Self-reliance campaign promoting indigenous production, innovation, and economic growth to reduce dependency on imports and boost domestic industries.

Way Forward:

  • Innovation Promotion: Supporting research and development in manufacturing, fostering the adoption of new technologies, and processes to drive innovation and productivity.

Result: This could include funding R&D initiatives or implementing policies to facilitate technology adoption.

  • Export-Oriented Manufacturing Promotion: Encouraging the growth of export-oriented manufacturing to access new markets and enhance competitiveness.

Result :This could involve supporting businesses in entering new markets or implementing policies incentivizing export-oriented production.

  • Infrastructure Investment: Enhancing infrastructure quality and availability, including roads, ports, and power supply, to attract investment and businesses.

Result :This may require constructing new infrastructure or upgrading existing ones.

  • Access to Finance Improvement: Facilitating SMEs’ access to credit and financing to support their growth.

Result :This may entail policies encouraging financial institutions to lend to manufacturing SMEs or offering government-backed loan guarantees.

  • Regulatory Streamlining: Simplifying regulations to reduce the burden on businesses and attract more investment.

Result : This could involve simplifying licensing processes, permits, or compliance requirements.

  • Skill Development Encouragement: Expanding skill development opportunities to address the shortage of skilled labour in manufacturing.

Result :This could include investing in vocational training programs or incentivizing businesses to provide employee training.

The editorial underscores the importance of sustained policy interventions to sustain economic growth momentum and foster inclusive development, emphasizing the need for gender-sensitive approaches in addressing internal female migration and sustained efforts to boost the manufacturing sector’s contribution to GDP.

Source:

https://www.thehindu.com/opinion/editorial/economic-encomium-on-the-finance-ministrys-10-year-review-of-the-economy/article67793033.ece/amp/

Mains Practice Question:

Examine the variables that have shaped India’s economic expansion in the last ten years and also assess the effectiveness of government policies and initiatives for achieving long-term economic growth.