Thursday, February 14, 2013

MANUFACTURING DEFECTS

Focus should not be only on service but manufacturing as well

The economies that focused on strengthening their manufacturing sector, post World War II, have prospered and became global economic superpower to reckon. However, in India, the manufacturing sector has been a laggard compared to the fast and racy service sector. As a result, the service sector’s contribution to the economy is 56.4 per cent compared to manufacturing sector’s 26.4 per cent. Only some patches of growth trajectory experienced by the manufacturing sector even if impressive and optimistic is never enough to catch up with the service sector in terms of employment generation and human capital exploiter.

However, the wide eyed analysts are staring at the stunning performance of the manufacturing sector that jump started from December last year delivering the highest growth rate in previous 6 months. The HSBC India Manufacturing Purchasing Managers’ India (PMI) – a production measure – is ever increasing peaking in December with an impressive 54.7 points, if anything, is an indicator of rising demand and frantic purchasing. However, in spite of this high gliding manufacturing run, the employment creation bottleneck persists as it used to be. The primary reason for that is high worker to fixed capital ratio or in simple parlance capital intensive industries that has become the preferred choice for both promoters as well as the consumers. A twin and opposite development of capital intensive export products have more than doubled from 25 per cent in 1993 to 54 per cent in 2010 on one hand, and labor intensive products, which has 30 per cent share has exactly halved during the same period to 15 per cent (based on the estimate by Indira Gandhi Institute of Developmental Research). As a result, despite some erratic and sometimes notable growth in the sector the employment growth has plummeted from 2.61 per cent in 1993-94 to 1.02 per cent in 2009-10.

In contrast, the service sector is expanding in leaps and bounds producing nothing short of an eye-popping contrast! In fourth quarter of FY 2011-12 when industry sector was growing at 1.9 per cent, the service sector was striding miles ahead at 7.9 per cent. Consequently, the top 3 employment generators in India for 2012 have all come from service sector viz. Healthcare, Hospitality and IT/ITES. This paradigm is the cornerstone for even engineers from top institutes opting for service when they should be engaging themselves for manufacturing sector, for which they are trained. The fees for IIT students was a huge subsidy delivery even till the last year, when it was pegged at Rs.50,000 a year, a subsidy of Rs, 1 lakh per student per year. And where are the returns of this investment, meant to train the students as functions of manufacturing sector boost, going to? Either to the foreign shore to bolster their own industry or to IT or banking sector for which engineers are not trained in IIT at the first place! But at last the government has realized the vain nature of the fund flow and decided to off-load the subsidy burden for the IIT students. The other government engineering colleges too pins to be on the same trail and it requires some extraordinary policy measures from the HRD ministry to reverse the trend.

The neglect of manufacturing sector and its dwindling health can stage perils for Indian economy in terms of long term prospects. The post war miracle economies of Germany and Japan were driven mainly by manufacturing boom and now the mercurial rise of Chinese economy is based on the same footing. India should not leave its future at the mercy of just one sector and put out the importance of manufacturing sector in its entirety!

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