Why manufacturing is important than services sector in India’s economic development?

In 1990, India’s GDP per capita was higher than that of China’s; though China was on its course of faster growth phase supported by the reforms it launched in 1978. Since then, China has outgrown India big and as on 2015, China’s economic size is close to $ 11 trillion whereas India’s size is $ 2.1 trillion. The rise of China was fueled by manufacturing revolution.

Over the last few decades, India’s growth performance was driven by services sector, whereas the growth rate of the manufacturing sector remained lower than that of overall GDP growth rate. As a result, the share of manufacturing in GDP stagnated at around 16%. This has caused perpetuation of structural retrogression with nearly 50% of the population remaining in the agricultural sector by producing only 17% of GDP. Service sector oriented development trend has failed to produce employment opportunities to support the structural shift. The dominance of the service sector and retardation of manufacturing sector has raised serious questions about the country’s development strategy as well.

The damaging elements of the overall development strategy were later corrected by the policy makers. There was a realization that an unconventional development path centered on service sector revolution has serious limitations on employment front as well as on technological attainments. Several policies were launched in quick time to correct the defects in the existing strategy and the beginning was the National Manufacturing Policy.

Macroeconomic importance of manufacturing is that large volume of employment is to be created outside agricultural sector to provide sustainable living opportunities to the expanding population. It is estimated that India needs to create 10 million new jobs each year outside agriculture to stay at its current unemployment level of 7 percent.

Steel, automotive sector, light engineering, pharmaceuticals, food processing, electronics, machine tools, textiles etc., are the major manufacturing sectors where India has developed considerable competence.

Significant progress was made in spheres of science and technology over the years. There is strong network of S&T institutions, trained manpower and an innovative knowledge base. Skill addition measures are spreading and efforts by the government to integrate the industrial training system with the manufacturing sector is going on.

From the angle of development strategy, India’s late policy resurgence on manufacturing is the main reason why the country lags behind China. The sector’s unique role in triggering structural change has remained unattended while focusing on less employment providing, less tradeable and less technology oriented service sector. For a country of more than one billion people, manufacturing is the solution for finding employment and income. In this context, development of manufacturing sector is a way to deliver inclusive growth as it helps people in the rural areas to seek employment in the manufacturing sector.