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New Delhi: West Bengal, Bihar and the north eastern states performed the poorest in a new ranking of manufacturing competitiveness, released by the Institute of Competitiveness, the Indian arm of Michael Porter’s research firm.

“States with the weakest manufacturing competitiveness mainly rely on the primary factor endowments— mainly unskilled labour and natural resources. The significant pillars for such states are transportation infrastructure, uptake of labour, basic education facilities and a decently stable business environment," the repo

The pillars relate to policy actions that would raise productivity in states with low manufacturing competitiveness.

Maharashtra, Gujarat, Tamil Nadu, Delhi, Haryana and Punjab have the highest manufacturing competitiveness, the report found.

The rankings are based on a study of 28 Indian states and Delhi through indicators that are associated with the highest manufacturing output per person in the working age population.

Indicators such as rail and road connectivity, growth of manufacturing output, share of small enterprises, access to credit and capital to labour ratio are chosen to reflect regulatory structure, business environment, technology sophistication and skills of the workforce, said the report, which intends to initiate changes at the state and central level policymaking relating to the manufacturing sector.

It pointed out that “presence of clusters, gross output per firm, value added per worker, investments, technology sophistication and a proper system of patents" had raised the productivity of manufacturing units in western economies.

Surprisingly, however, the report did not include indicators related to labour laws, which are often pointed to as reasons for the stagnation in the manufacturing sector’s contribution to growth.

Contribution of India’s manufacturing sector has remained at 15-16% in the past two decades. The government aims in its strategic manufacturing policy to raise this to 25% and create 100 million jobs by 2022.

“Some economists insist that unless India changes its labour laws, investments will not come and manufacturing will not grow. Both employers and unions have been demanding changes in India’s antiquated labour laws for many years. Employers want more ‘flexibility’. Unions want more ‘fairness’. However, merely repeating the need for labour law reforms will not change the laws. There must be a consensus about what the new laws should be," said Arun Maira, member, Planning Commission, in a recent column in Mint.

India has initiated an exercise to assess business regulatory framework across states in a consultative manner, Mint reported in June.

Both microeconomic and macroeconomic policies, the former affecting states’ business environment and the latter affecting institutions and infrastructure, must move in coordination, the report said.

“Microeconomic policy is more amenable to fast reforms but often unsustainable if not matched by policy changes in other areas. Macroeconomic competitiveness creates the potential for high productivity, but is insufficient to achieve sustainable prosperity," it said.

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