Relevance : GS Paper III
Theme of the Article
No major country has managed to reduce poverty or sustain economic growth without a robust manufacturing sector.
Why has this issue cropped up?
The contribution of manufacturing to India’s GDP in 2017 was only about 16%.
India’s comparison with other economies
Malaysia roughly tripled its share of manufacturing in GDP to 24%, while Thailand’s share increased from 13% to 33% (1960-2014).
Core to growth
- Productivity in industry is much higher than in either agriculture or services.
- Manufacturing creates positive spillover effects in the economy.
International Scenario
- In the U.S. and Europe, after the 2008 crisis, there have been efforts to revive industrial sectors.
- Over 100 countries have, within the last decade, articulated industrial policies.
The case of India
India still has no manufacturing policy. Why have an industrial policy in India now?
- First, there is the need to coordinate complementary investments.
- Second, industrial policies are needed to address learning externalities.
- Third, the state can play the role of organizer of domestic firms into cartels in their negotiations with foreign firms or governments.
- Fourth, to avoid competing investments in a capital-scarce environment.
- Fifth, to ensure that the industrial capacity installed is efficient.
- Sixth, to facilitate structural change.
- Finally, manufacturing will create jobs.
Conclusion
Unfortunately, the potential role of industrial policy has been consistently downplayed in developing countries outside of East Asia.
