INDIAN MANUFACTURING'S PROBLEM OF SCALE

Larger firms reap economies of scale better. But in India, their share in employment is facing growth pangs

- howindialivescom

The production-linked incentive (PLI) scheme-one ofthe ways in which this government was hoping to increase manufacturing in India-is going through a slowdown, with planned expansions to the programme being put on hold. Disbursements under the scheme, which amounted to ₹10,000 crore in 2023-24, had slowed to around ₹l,000 crore so far this year, according to a Mint report. One reason for the slowdown in disbursements is that the current lot of beneficiary firms are struggling to meet their production targets under the scheme-a pre-condition to receive incentives. F or instance, in the textiles sector, companies must invest ₹300 crore and achieve a minimum turnover of ₹600 crore by the first cperformance year', 2024-25. According to the report, the textiles ministry has, for now, suspended a previous plan to expand the scope ofthe scheme to t-shirts and innerwear. The textiles sector has turned out to be a missed opportunity so far. A recent World Bank report pointed out that India's share of global exports of apparel, leather, textiles and footwear (ALTF) rose from 0.9% in 2002 to 4.5% in 2013, only to fall to 3.5% by 2022. Even as China's dominance in the sector started to slow by 2015, with its share of global exports first level-ling off and then declining, the benefits went to Bangladesh and Vietnam rather than India. Why is textiles so important, especially when India's performance in other sectors such as automobiles, and even electronics, has been much better, with Apple moving part ofits i Phone manufacturing to India? As the World Bank report points out, in 2020, capital-intensive sectors (which would include electronics and automobiles) accounted for 70% of manufacturing value-added but 50% of formal sector manufacturing jobs. In contrast, labour-intensive sectors such as ALTF accounted for 20% of manufacturing value-added, but 40% of formal sector manufacturing j obs. "These labour-intensive activities present vast opportunities for job growth, particu