Liberalisation of manufacturing

The focus of manufacturing policy should be on new startups and technological growth

- NITIN DESAI

Thirty-five years ago, in 1991, Manmohan Singh, then Union finance minister, presented a Budget that abolished industrial licensing and launched what has been described as “liberalisation” reform, but which is better described as “privatisation” reform because it involved a shift from the public sector in industry.

Perhaps the most important intention was to accelerate growth in manufacturing, and there was a boost with the share of manufacturing in gross value added (GVA) at current prices rising to 19.7 per cent in 1995-96.

But this was a temporary achievement. The share of manufacturing in GVA at current prices has fluctuated in the 17-18 per cent range since then and was 17.4 per cent in 2011-12. Subsequently it declined steadily to 14.3 per cent in 2023-24, which is 3 percentage points lower than the level reached as far back as 1974-75. This decline is also matched by the fall in the share of manufacturing in gross fixed capital formation from 40.8 per cent in 2011-12 to 31.6 per cent in 2023-24. An even more disturbing feature is that the share of manufacturing in employment remained static at a little over 10 per cent all the way from 1990-91.

From a global perspective, the “World Development Indicators” show that in calendar year 2024, manufacturing value added as a percentage of gross domestic product (GDP) in current dollars was 12.6 per cent in India. This is distinctly below that of our neighbours Bangladesh (21.9 per cent) and Sri Lanka (17.6 per cent); Southeast Asian countries Indonesia (19.0 per cent), Malaysia (22.5 per cent), Thailand (24.3 per cent), and Vietnam (24.4 per cent); and East Asian nations China (24.9 per cent) and South Korea (26.6 per cent).