Manufacturing sector’s ‘missing middle’ (The Hindu)

Mains Paper 3: Economy
Prelims level: India’s industrial policy
Mains level: Highlights of the India’s industrial policy

Context

•  The contribution of manufacturing to GDP in 2017 was only about 16 per cent, stagnating since the economic reforms began in 1991.
•  In India, manufacturing has never been the leading sector in the economy other than during the Second and Third Plan periods.
•  But no major country managed to reduce poverty or sustain growth without manufacturing driving economic growth. India needs an Industrial Policy, which it has not had since 1991.

Features of the India’s industrial policy

•  India’s manufacturing sector has been characterised by the missing middle: a concentration of small/micro firms at one end of the spectrum, and some large firms in each sector at the other.
•  One purpose of an industrial policy is for the government to encourage scale economies, by encouraging growth of small firms into bigger ones to fill the missing middle.
•  India has almost 5,000 clusters spread across the country where most unorganised segment manufacturing employment is concentrated.
•  It accounts for 40 per cent of manufacturing GDP and over 50 per cent of exports.

Policy fragmentation

•  Also, cluster programmes are administered by several ministries (Textiles, Leather, Food, MSME, Heavy Industry (auto)) under different terms and conditions.
•  This fragmentation of policy must end. Serious planning for clusters requires industrial planning, both at the Central and State levels.
•  There are at least four sets of actions required for cluster programmes by the Centre technology upgradation, skill development, market information facilitation, and design improvement.
  Stimulation cell
•  The Planning Commission (2013), in the 12th Plan, made an excellent recommendation to set up a Cluster Stimulation Cell at the apex level in the MSME Ministry, that will work to promote cluster associations.
•  But this kind of cell will need replication at the State level, and mechanisms to make them operationally effective at the district level.
•  This requires funds. Effective cluster development has been very important to China’s industrial development (as well as in late-industrialiser Italy).
•  There are as many as 100 clusters in China only producing socks!
•  About 1,234 manufacturing clusters are in urban locations mostly, and as unorganised segment enterprises.
•  In addition, there are others: handicrafts and other manufactures 3,110; handloom 573, thus a total of 4,917.
•  They are mostly in small towns (< 0.5 million population) or in small (0.5-1 million) and medium cities (1-4 million).

Cluster Development programme

•  India’s Cluster Development programme, which took off only in 2005, will need much more than the ₹1,000 crore per annum, the budget of the Ministry of Micro, Small and Medium Enterprises, for the 5,000 clusters in India.
•  Also notable is the biased nature of the MSME Ministry’s incentives, financial and non-financial which favour micro and small capital investment enterprises to the detriment of their growth into medium-sized enterprises.
•  The modern industry clusters will need much greater access to institutional sources of credit. The limited resources of the Small Industries Development Bank of India (SIDBI) cannot suffice.

The skills factor

•  To raising cluster productivity requires skills. At local cluster level there are few vocational or training centres available.
•  If new vocational education/training were focussed at cluster level, newly educated youth will get employment at cluster level, close to their homes.
•  This equally applies to girls, as for cultural reasons their parents will not let them live away from home; gender parity at secondary level with GER at 80 per cent now requires a new focus on vocational training at cluster level to make these boys and girls employable.
•  With rising education levels, the government should promote other opportunities.

Online trade

•  These brownfield clusters could benefit hugely from the spread of internet and online sales to utilise the educated youth in rural/semi-urban areas. Online trade is an example of how technology shapes the geography of jobs. Technology can enable clusters of business to form in under-developed and rural areas.
•  For instance, in China, rural micro e-tailers began to emerge in 2009 on Taobao.com Marketplace, one of the largest online retail platforms in China owned by Alibaba.
•  These clusters referred to as “Taobao Villages” spread rapidly, from just three in 2009 to 2,118 across 28 provinces in 2017. India’s 50,500-odd clusters can benefit from similar activities.
•  India’s smartphone users are upwards of 350 million at present, and e-commerce can enable MSMEs to access larger markets and source cheaper inputs.
•  Apart from Central interventions, States with an Industrial Policy (Karnataka, Andhra Pradesh, Kerala, Telangana, Tamil Nadu, Chhattisgarh, Punjab, Madhya Pradesh, Uttar Pradesh) should focus on job creation through cluster development.

Way forward

•  However, the shares of agriculture and industry in the credit by commercial banks declined from the 1990s onwards.
•  As a share of non-food gross bank credit, lending to SSIs fell from 15.1 per cent in 1990-91 to 6.5 per cent in 2005-06, 5.7 per cent in 2010-11, and only 4.9 per cent in 2017-18.
•  This is over and above the high cost of interest (11 per cent versus 4 per cent in China).
•  But government needs to employ blockchain technology to help SMEs in such clusters in financing.
•  Thus Mahindra Finance, currently uses blockchain in SME financing by connecting suppliers, OEMs, and financiers for sharing data securely over the network chain to request and approve transactions.

  Online Coaching for UPSC PRE Exam

  General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) With reference to the International Energy Agency (IEA) Bioenergy Technology Collaboration Programme (TCP), consider the following statements:
1. It is an international platform for cooperation and information exchange in bioenergy.
2. It works under the aegis of the United Nations.
3. India has recently joined the IEA Bioenergy TCP.

Which of the statements given above is/are correct?
(a) 1 and 3 only
(b) 1 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: A
Mains Questions:
Q.1) What are the steps require to be taken by the government to revamp the manufacturing sector in India?