GS III ( Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment) (Hattrcik)

India has convinced a lot of people and the world is making big bets on its stature as a manufacturing and economic powerhouse. However, there are many challenges that lie ahead. Critically comment. Do you think that China is feeling pressure from Indian manufacturing sector?

Best answer

Narayana Sarma wrote the best answer for this question and got a score of 5/10. The answer is being reproduced below for everyone’s convenience. Of course these answers can always be improved. (Best answer  of Day 34 only involves those given on Day 34, later answers may not have been checked)

India’s rank in ease of doing business index jumped four places to 130. Also, it is expected that India would be at 5th position in Global Manufacturing Competitiveness Index by 2020, thanks to the efforts taken by government of India. However, the Indian manufacturing sector accounts only for 17% of GDP compared to that of 33% in China. Some of the challenges faced by foreign investors in manufacturing sector are:
-Shortfall in resources and inrastructure
-Lack of skilled labour to absorb transferred technology & low spending (R&D) in creating new technologies
-Problems of land acquisition and difficult environmental clearances
-Outdated labour regulations which mandate minimum work benefits and conditions
-Highly complex tarriff structure
-Enforcement of legislations like Industrial Disputes Act and Trade Unions Act which allow employees to strike legally and have multiple unions within an organization
-Little focus on industrial/vocational education which is responsible for unskilled populace
-Frequent usage of protectionist measures such as Anti-Dumping Duty under Special Safeguard Mechanism of WTO, which limits import of raw materials of investors’ choice
In order to make India a sweet spot for foreign investors and make India a manufacturing and economic powerhouse, the Government has taken follwing steps:
-Skill Development Programme, Pradhan Mantri Kaushal Vikas Yojana, Apprentice Protsahan Yojana which hone the skill of unemployed populace
-Liberalization and opening up of India’s economy by allowing FDI even to the extent of 100% under automatic route through Make in India initiative
-Proposed implementation of GST would reduce the complex structure of taxation
-Proposed bill of bankruptcy, which would allow easy exit of ventures/start-ups
-Frequent bilateral/multilateral talks with other nations, especially SAARC and BRICS in attracting investors

While these pro-manufacturing reforms have diverted foreign investors from China to our country, it has done little to boost the domestic manufacturing sector. In my opinion, though this level of liberalization is necessary in creation of jobs, growth and development, the domestic sector is not yet ready to digest the competition offered by their foreign counterparts.