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India unlikely to achieve National Manufacturing Policy targets: Crisil Research

The targets set by India’s ambitious National Manufacturing Policy may be just that – ambitious, according to Crisil Research, part of the Crisil group.

According to the National Manufacturing Policy, India aims to raise the share of manufacturing from about 16% at present to 25% in ten years and generate additional 100 million (10 crore) jobs.

The policy aims to do this by copying some of China’s strategies that helped the country become the world’s top manufacturing destination in a little more than two decades. It aims to set up special zones which would be rid of the debilitating red tape that has been widely identified as the reason behind India’s backwardness in manufacturing, despite having a booming consumer market.

The targets “would be difficult to achieve. According to our estimates, by 2021-22, the manufacturing sector’s share in GDP would grow to 17 per cent and this sector can, at best, generate an additional employment of 69 million,” the financial research agency said.

The government hopes to attract manufacturing companies, particularly big multinationals from places such as Japan, in specially created zones and cities, under the policy.

But the research agency felt the targets were too ambitious.

“To raise the share of manufacturing in India’s GDP to 25 per cent by 2021-22 from 15.4 per cent currently, the manufacturing sector will have to grow at 16.3 per cent per year in the next decade.

“This is double the rate of growth of 8.1 per cent per year achieved in the last decade. No major country, even during periods of favourable domestic and external environment, has seen such high decadal manufacturing growth, except South Korea in 1970s,” it pointed out.

In its opinion, even if the policy is implemented well, manufacturing could grow by 10.5 per cent per year up to 2021-22, raising its share in total GDP to 17 per cent by 2021-22.

“Sustaining manufacturing growth of above 10 per cent per year would be an overwhelming challenge as the global environment will remain less favourable over the next few years. Even to achieve 10 per cent growth per year, the role of policy in addressing supply side bottlenecks such as infrastructure will be critical,” said Mukesh Agarwal, President, Crisil Research.

The aim of creating 100 million additional jobs in manufacturing by 2021-22 also presents a significant challenge as the employment intensity (measured as the number of people required to produce manufacturing output of Rs 1 lakh) has been declining over the last decade, it pointed out.

“Manufacturing intensity declined to 7.0 in 2009-10 from 11.5 in 1999-00. If this trend continues, the employment intensity would fall to 4.5 by 2021-22. In such a scenario, even if manufacturing grows at 10.5 per cent in the next decade, only 19 million additional jobs will be created in the sector,” it noted.

The agency said that if the NMP succeeds in limiting the fall in employment intensity to 5.6 by 2021-22, additional employment of 69 million can be generated over the next 10 years compared with the 15 million created during the preceding decade.

Of the 69 million additional jobs, 19 million will come from higher growth in manufacturing. The balance 50 million jobs will be the outcome of efforts aimed at promoting the role of labour in manufacturing activity, it added.

“Employment intensity of manufacturing will continue to decline due to technological improvement. However, through policy support, the pace of decline can be arrested, which would result in significant job additions.

“To achieve this, it would be critical to improve the attractiveness of labour relative to capital (via labour market reforms), accelerate appropriate skill development programmes and encourage labour-intensive industries,” said Vidya Mahambare, Director, Economy Research, CRISIL.

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