The manufacturing sector needs to specialize to become India’s economic growth engine.
Eleven manufacturing value chains in India have strong potential to operate in international markets, boosting India’s power and providing long-term employment and skill pathways to several Indians. With relevant reforms and complementary actions by manufacturing companies, it is estimated that these 11 manufacturing value chains can generate about $320 billion more in gross value added within the next seven years, said a McKinsey report. About 80 percent of that GVA potential resides in six value chains which are chemical products and petrochemicals; agriculture and food processing; electronics and semiconductors; capital goods and machine tools; iron ore and steel; and automotive components and vehicles.
The report added that these 11 value chains can foster India’s growth as they are well-positioned to capitalize on India’s advantages in raw materials, manufacturing skills, and entrepreneurship. It further said that they can also tap into four market opportunities which are export growth, import localization, domestic demand, and contract manufacturing. The new industrial policy is also attributed to the potential these value chains hold.
However, the report underlined that the manufacturing sector needs to specialize to become India’s economic growth engine. India’s manufacturing growth has been slower than expected in the past and is believed to be a country. From FY06 to FY12, India’s manufacturing-sector GDP grew by nearly 9.5 percent on-year. But, over the next six years, the growth fell to 7.4 per cent. This year, manufacturing generated 17.4 percent of India’s GDP, which is a little more than the 15.3 per cent it had contributed in 2000, showed the McKinsey report.
It is to be noted that Vietnam’s manufacturing sector more than doubled its share of GDP during the same interval. While the manufacturing sector has the potential to generate jobs on a high-scale, the share of employment increased by just 1 percentage point in the last 13 years, compared with a 5 percentage point increase for the services sector. In a previous report, the firm mentioned that India needs rapid GDP growth to create at least 9 crore non-farm jobs by 2030.