Manufacturing Sector

Model Answer

Introduction

The Production Linked Incentive (PLI) scheme has been a game-changer in strengthening India’s manufacturing sector, attracting both domestic and foreign investments. However, despite its success, the need for a comprehensive industrial policy remains critical to ensure sustained and inclusive industrial growth. Below is an assessment of the role of the PLI scheme and the necessity for a new industrial policy.

Role of the PLI Scheme

1. Wide Coverage: The PLI scheme targets 14 key sectors like electronics, automobiles, pharmaceuticals, and textiles. This wide reach covers a substantial portion of the economy, fostering growth in diverse industries.
   Example: Electronics, automobiles, and textiles are all major sectors benefitting from the PLI scheme.
2. Large-Scale Investments: By offering incentives, the PLI scheme has attracted over INR 1.03 lakh crore in investments, bolstering India’s manufacturing capabilities. Fact: By November 2023, the scheme had attracted INR 1.03 lakh crore in investments.
3. Job Creation: The PLI scheme has the potential to create approximately 60 lakh new jobs across various sectors in the next five years. Example: The scheme is expected to stimulate job creation, particularly in manufacturing hubs.

Need for a New Industrial Policy

While the PLI scheme has delivered impressive results, a new industrial policy is crucial to address broader and long-term challenges:

1. Comprehensive Framework: A new industrial policy would provide a more comprehensive framework, addressing not just sector-specific growth but also infrastructure development, skill enhancement, and research and development. Example: Infrastructure and skill development are key areas that need policy attention beyond the scope of the PLI scheme.
2. Long-Term Vision: The PLI scheme focuses on short-to-medium-term objectives. A new industrial policy could outline strategic long-term goals for industrial transformation, guiding India’s manufacturing sector for decades to come.
3. Inclusive Growth: The PLI scheme predominantly benefits large firms in certain sectors, but a new policy could promote inclusive growth by supporting small and medium enterprises (SMEs). Example: MSMEs could benefit from tailored incentives and support structures.
4. Environmental and Social Considerations: A modern industrial policy should integrate sustainability, environmental standards, and social welfare considerations, ensuring equitable industrial growth. Example: Ensuring that industrialization also supports environmental goals and benefits all sections of society is vital.

Conclusion

While the PLI scheme is an important tool for boosting India’s manufacturing sector, a new industrial policy is essential to provide a broader, more inclusive, and sustainable framework for industrial development. Instead of replacing the PLI, the new policy can complement it, focusing on long-term strategic goals and addressing areas that the PLI does not cover.

Model Answer

India’s growing working-age population, expected to increase by about 9.7 million annually from 2021 to 2031, presents both an opportunity and a challenge. Labour-intensive manufacturing could help create jobs, but several barriers hinder this strategy.

1. Capital-Intensive Focus in Manufacturing

India’s manufacturing sector has been more capital-intensive than labour-intensive. The workforce in manufacturing shrank from 51 million in 2017 to 27.3 million in 2021, as industries focus more on automation and capital-heavy production processesmits the potential for job creation in sectors that traditionally employ large numbers of workers.

2. Policy Gaps and Lack of Support for MSMEs

While initiatives like Make in India and Production-Linked Incentive (PLI) schemes primarily target capital-intensive industries, the bulk of employment in manufacturing lies in MSMEs (Micro, Small, and Medium Enterprises). However, MSMEs struggle with inadequate banking, financial, and infrastructure support . There for policies that provide tailored support to MSMEs, especially in labour-intensive sectors like textiles, food processing, and footwear.

3. Structural Bottlenecks

India’s complex labour laws, restrictive land acquisition regulations, and high logistics costs (14% of GDP compared to under 10% in developed nations) further complicate the path to scaling labour-intensive manufacturing . These barriersnt and make manufacturing less competitive.

4. Competition from Emerging Markets

Countries like Bangladesh and Vietnam, which have benefited from lower production costs and better market access, are increasingly competing with India in global markets for labour-intensive products . India must address this rising coto retain its market share.

5. Unskilled Workforce and Technology Upgradation

A lack of formal skills training—only 21.2% of India’s workforce had such training in 2019 —limits productivity in labour-intensive secover, sectors like textiles have increasingly adopted automation, reducing the need for manual labour and hindering job creation.

To tackle these challenges, India must focus on supporting MSMEs, improving infrastructure, and upskilling its workforce, creating a more favorable environment for labour-intensive manufacturing to thrive.