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Business News/ Politics / Policy/  The Make in India dream

The Make in India dream

It is useful to look at disaggregated data at the state level to get a better idea about the performance of manufacturing in India

Photo: BloombergPremium
Photo: Bloomberg

One of the Narendra Modi-led government’s key initiatives, the Make in India campaign, has generated an intense debate on the scope of manufacturing in the country. Sceptics of the ‘Make in India’ campaign argue that with growth slowing globally, it may not be possible for India to follow the standard Asian template of industrialization and export-fuelled growth to capture world markets. Optimists argue that given the size of its domestic market and its heavy dependence on imported goods, manufacturing in India still has scope to grow. As the rest chart below shows, manufacturing as a share of India’s gross domestic product (GDP) is only a little below the average for lower middle income countries but is significantly below the average for upper middle-income economies.

Over the past three decades, the Indian economy has grown at its fastest pace ever. Yet, the relative shares of the states in the national manufacturing pie have not changed much. In 1980-81, the top 5 states accounted for 62% of the country’s manufacturing output. Today, the top 5 states account for 56% of the country’s manufacturing output. As the accompanying charts show, the relative shares of manufacturing in their respective economies have fallen across states over the past three decades. is holds true for both industrial heavyweights and industrial laggards. Barring a few exceptions such as Gujarat, Himachal Pradesh and Odisha, the relative importance of manufacturing in state economies has either remained the same, or declined over time.

Overturning the stasis of the past three decades is a tough ask.

India, a manufacturing laggard

The contribution of India’s manufacturing sector to GDP is lower than most Asian economies, including that of poorer neighbours such as Bangladesh and Pakistan. The share of the manufacturing sector is a little smaller than the average for lower middle-income countries, and significantly lower than the average for upper middle-income countries such as China.

States of indian manufacturing

Within India, there is a wide variation among the states in manufacturing prowess. The top 5 states account for 56% of the national manufacturing pie, and this figure has not changed much since the early 1980s. The same holds for the bottom five states, which account for 8% of the national manufacturing pie. While there is a wide gulf between the industrially advanced states and the industrially less developed states, very few of the less developed states have been able to increase the size of the manufacturing sector over the past three decades. The respective shares of each state has remained roughly the same, barring two notable exceptions: West Bengal, which witnessed a spectacular decline since the eighties thanks to increased labour militancy, and Himachal Pradesh, which saw its share rise thanks to the new industrial policy which helped the state garner new investments.

A story of stasis

Only three Indian states—Maharashtra, Gujarat and Tamil Nadu—have a manufacturing sector comparable with those of upper middle-income countries in the world. But in two of them, Maharashtra and Tamil Nadu, manufacturing has been losing ground to other sectors of the economy over the past three decades. Among the other states with a big manufacturing sector, Uttar Pradesh has grown its manufacturing sector marginally over the past three decades while Andhra Pradesh has seen the size of its manufacturing sector shrink over the same period. Among the industrial laggards, Odisha and Himachal Pradesh have seen impressive growth in their manufacturing economy but other states such as Kerala and Delhi have seen their manufacturing sectors shrink in comparison with their overall economies. The overall picture across states has been one of stasis, with only a few exceptions where manufacturing growth has picked up rapidly.

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Updated: 22 Dec 2014, 12:56 PM IST
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