IMPROVING MANUFACTURING'S SHARE IN GDP

The government has a big role in improving infrastructure, maintaining a reserve of critical inputs and overhauling GST

- By MANAK CHAND SINGHI & R. GOPALAN, SINGHI (LEFT) IS FORMER SENIOR ECONOMIC ADVISER, MINISTRY OF FINANCE; GOPALAN IS FORMER ECONOMIC AFFAIRS SECRETARY

DURING 2011-12 TO 2024-25, the share of manufacturing in GDP stagnated at 14-17%. The government aimed to increase this to 25% post reforms in 1991. The target has remained elusive. Another plan was to raise the share of workers engaged in manufacturing to at least 100 million; we had reached two-thirds of that level in 2023-24 (11.4% of workers). Overall manufacturing growth during 2011-2025 averaged 5.9% as against overall GDP growth of 6%. To get a 25% share in GDP, manufacturing growth needs to be nearly 1.6 times the rate of growth of GDP.

Trade disruptions, supply chain chokes, geopolitical uncertainties, need for a greater oversight of the production process, job creation, innovation and national security make a strong case for onshoring manufacturing.

We need to develop and adhere to a strategic intent for manufacturing, like China's Strategic Development Plan 2025. Emphasis on effectiveness of R&D is necessary. China has a reservoir of AI experts built up through emphasis on R&D. Domestic labs, innovators, institutions have been funded adequately. This includes repatriation of Chinese AI experts from abroad. Tamil Nadu has a scheme to get top overseas Indian talent to repatriate. The use of technology has impacted manufacturing. During 2011-2023, average value added in manufacturing was ₹20 lakh crore, employing on average 56 million workers and having ₹67 lakh crore of capital stock.

For structural transformation, we analyse total factor productivity (TFP) in manufacturing.