Towards A Competitive Manufacturing Sector

Towards a Competitive Manufacturing Sector

By

Rajiv KumarDirector and Chief Executive, ICRIER

Outline

• Aggregate Manufacturing Scenario

• Regional Disparities

• Employment Generation

• Unorganized Sector

• Export Performance

• Transition to Mass Manufacturing

• Policy Recommendations

Aggregate Manufacturing Scenario

Significance of Key Sectors in the Economy

0

5

10

15

20

25

30

35

40

45

50

55

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Years

Sh

are

in G

DP

(%

)

Manufacturing Agriculture Services Industry

Cross Country Comparison

Share of Manufacturing Sector (2004)

24.07 24.00

16.10

39.41

28.34 28.74

31.40

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

Argentina Brazil India China Indonesia Korea Malaysia

Countries

Sh

are

in

GD

P

Composition of Manufacturing Sector Across Countries

12.37

20.39

9.50 8.24

15.22

13.27

8.10 8.83

32.35 20.59

44.9840.90

28.0634.75

29.60 38.24

11.99 11.007.82

3.80

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CHN IND KOR MYS

Countries

Sh

are

(P

erc

en

tag

e)

Chemicals FBT Mach & Transp Others Textiles

Growth of Indian Industry

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

1950-54 1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2004-06

Mining Electricity Manufacturing

Growth of Components of Manufacturing Sector

Growth of Manufacturing Gross Value Added (%)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1950-59 1960-69 1970-79 1980-89 1990-99 2000-04

Years

Gro

wth

Ra

te (

pe

rce

nta

ge

)

Manufacturing Registered Unregistered

Performance of the Manufacturing Sector

-10

-5

0

5

10

15

20

25

Q1

198

2-8

3

Q4

198

2-8

3

Q3

198

3-8

4

Q2

198

4-8

5

Q1

198

5-8

6

Q4

198

5-8

6

Q3

198

6-8

7

Q2

198

7-8

8

Q1

198

8-8

9

Q4

198

8-8

9

Q3

198

9-9

0

Q2

199

0-9

1

Q1

199

1-9

2

Q4

199

1-9

2

Q3

199

2-9

3

Q2

199

3-9

4

Q1

199

4-9

5

Q4

199

4-9

5

Q3

199

5-9

6

Q2

199

6-9

7

Q1

199

7-9

8

Q4

199

7-9

8

Q3

199

8-9

9

Q2

199

9-0

0

Q1

200

0-0

1

Q4

200

0-0

1

Q3

200

1-0

2

Q2

200

2-0

3

Q1

200

3-0

4

Q4

200

3-0

4

Q3

200

4-0

5

Q2

200

5-0

6

Q1

200

6-0

7

Quarters

Gro

wth

Rate

(P

erc

en

tag

e)

Comparison of the Manufacturing with Other Core Sectors

0.0

50.0

100.0

150.0

200.0

250.0

300.01

98

1/8

2

19

82

/83

19

83

/84

19

84

/85

19

85

/86

19

86

/87

19

87

/88

19

88

/89

19

89

/90

19

90

/91

19

91

/92

19

92

/93

19

93

/94

19

94

/95

19

95

/96

19

96

/97

19

97

/98

19

98

/99

19

99

/00

20

00

/01

20

01

/02

20

02

/03

20

03

/04

20

04

/05

20

05

/06

Years

Ind

ex o

f In

du

str

ial P

rod

ucti

on

Electricity Coal Steel Petroleum Crude Manufacturing Cement

Comparison of the Manufacturing with Other Core Sectors

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.0019

81/8

2

1982

/83

1983

/84

1984

/85

1985

/86

1986

/87

1987

/88

1988

/89

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

Years

Gro

wth

Rat

e (P

erce

nta

ge)

Electricity Coal Steel Cement Petroleum Crude Manufacturing

Change in Composition of the Manufacturing Output

1980-81

16%

15%

1%1%

1%

3%

8%

14%

3%

3%

15%

6%

5%

4%3% 2%

1990-91

16%

11%

1%

2%

0%

3%

9%

14%

3%

4%

17%

5%

4%

5%

3%3%

2003-04

16%

8%

1%

1%

0%

3%

14%

14%

3%

3%

4%

3%

6%

3%6%

15%

Regional Disparities in India

Statewise Decomposition of Manufacturing Output1990-91

Bih +Jha5% MP + Cha

5%

Raj3%

UP + Utt10%

Mah24%

Guj11%

TN11%

AP6%

Kar5%

Har4%

WB6%

Pun5%

Ker2%

Del2%

Other1%

1970-71

Bih +Jha5%

MP + Cha4%

Raj2%

UP + Utt7%

Mah26%

Guj10%

TN10%

AP5%

Kar4%

Har2%

WB13%

Pun3%

Ker3%

Del2%

Other4%

2003-04

Bih +Jha3%

MP + Cha5%

Raj3%

UP + Utt8%

Mah18%

Guj17%

TN11%

AP7%

Del1%

Other4%Kar

7%

Har5%

WB4%

Pun4%

Ker3%

Contribution of States to Output and Employment in Manufacturing

Decomposition of Output Decomposition of Employment

2003-04

Bih +Jha3%

MP + Cha5%

Raj3%

UP + Utt8%

Mah18%

Guj17%

TN11%

AP7%

Kar7%

Har5%

WB4%

Pun4%

Ker3%

Other4%

Del1%

2003-04

MP + Cha3%

Raj3%

UP + Utt8%

Mah13%

Guj9%

TN16%

AP12%

WB7%

Kar6%

Ker5%

Pun4%

Har4%

Del1%

Other6%

Bih +Jha3%

AP

GoaGuj

Har

Kar

Ker

MP & Cha

Mah

Pun

Raj

TN

UP & Utt

WB

1015

2025

20 30 40 50 60Share of Power Devoted to Industrial Sector

Share of Manufacturing in GDP Fitted values

Significance of Power for the Manufacturing Sector

AP

Goa Guj

Har

Kar

Ker

MP & Cha

Mah

Pun

Raj

TN

UP & Utt

WB

1015

2025

20 40 60 80 100Share of Surfaced Roads


Significance of Roads for the Manufacturing Sector

AP

GoaGuj

Har

Kar

Ker

MP & Cha

Mah

Pun

Raj

TN

UP & Utt

WB

1015

2025

3 4 5 6 7Share of Students Enrolled in Higher Education


Significance of Higher Education for the Manufacturing Sector

AP

GoaGuj

Har

Kar

Ker

MP & Cha

Mah

Pun

Raj

TN

UP & Utt

WB

10

15

20

25

30

0 10000 20000 30000 40000Per Capita GDP


Relationship Between Per Capita GDP and Manufacturing

Performance of the Unorganized Sector

Share of Unorganized and Organized Manufacturing in Valued Added and Employment (2000-01)

Workers (Percent) Gross Value Added (Percent)

Sectors Unorganized Organized Unorganized Organized

Food Beverages and Tobacco 87.43 12.57 35.24 64.76

Textiles and Wearing Apparel 88.65 11.35 43.37 56.63

Leather and Leather Products 77.71 22.29 39.16 60.84

Wood and Wood Products 99.29 0.71 93.30 6.70

Paper, Publishing and Printing 77.40 22.60 22.53 77.47

Coke, Refined Petroleum and Nuclear Fuel 31.87 68.13 0.59 99.41

Chemical and Chemical Products 51.10 48.90 2.68 97.32

Rubber and Plastic Products 64.01 35.99 17.69 82.31

Other Non Metallic Non Mineral Products 89.78 10.22 32.05 67.95

Basic Metals 23.91 76.09 3.14 96.86

Fabricated Metals 87.87 12.13 43.89 56.11

Machinery and Equipment 63.91 36.09 13.59 86.41

Electrical Machinery and Apparatus 61.46 38.54 13.71 86.29

Motor Vehicles 36.47 63.53 5.29 94.71

Furniture 97.13 2.87 74.62 25.38

Others 39.79 60.21 5.03 94.97

Total 86.15 13.85 24.76 75.24Source: NSSO 56th Round and Annual Survey of Industries

Gross Value Added Per Worker in Unorganized and Organized Manufacturing (2000-01)

Gross Value Added Per Worker (Rs. Lakhs)

Sectors Unorganized Organized

Food Beverages and Tobacco 0.12 1.56

Textiles and Wearing Apparel 0.15 1.51

Leather and Leather Products 0.22 1.21

Wood and Wood Products 0.10 1.01

Paper, Publishing and Printing 0.29 3.44

Coke, Refined Petroleum and Nuclear Fuel 0.24 18.59

Chemical and Chemical Products 0.18 6.91

Rubber and Plastic Products 0.38 3.15

Other Non Metallic Non Mineral Products 0.15 2.85

Basic Metals 0.45 4.34

Fabricated Metals 0.23 2.18

Machinery and Equipment 0.35 3.98

Electrical Machinery and Apparatus 0.39 3.88

Motor Vehicles 0.41 4.19

Furniture 0.22 2.50

Others 0.37 4.59

Total 0.16 2.98

Total (Less Products with VA<10% in Unorg. Sector) 0.15 2.07

Employment Generation

Employment Growth Rate in Manufacturing Sector

Major Industrial Groups Unorganized Organized

Food, Beverages and Tobacco 0.9 0.96

Textiles and Leather 3.05 1.21

Paper and Products 1.69 0.1

Chemicals and Products 0.87 2.02

Non-Metallic Mineral Products 0.65 0.82

Basic Metals 3.9 -0.91

Metal Products 2.89 2.05

Machinery and Equipment 4.1 0.82

Transport Equipment 1.44 0.02

Other Manufacturing (Including Wood) 1.29 3.88

Note: * Period covered for Unorganized Manufacturing is 1989-90 to 2000-01. ** Period covered for Organized Manufacturing is 1990-91 to 2003-04Source: Annual Survey of Industries and NSS reports, various years

Employment in Organized Manufacturing Sector

4000000

4500000

5000000

5500000

6000000

6500000

7000000

7500000

8000000

19

73-

74

19

74-

75

19

75-

76

19

76-

77

19

77-

78

19

78-

79

19

79-

80

19

80-

81

19

81-

82

19

82-

83

19

83-

84

19

84-

85

19

85-

86

19

86-

87

19

87-

88

19

88-

89

19

89-

90

19

90-

91

19

91-

92

19

92-

93

19

93-

94

19

94-

95

19

95-

96

19

96-

97

19

97-

98

19

98-

99

19

99-

00

20

00-

01

20

01-

02

20

02-

03

20

03-

04

Years

Nu

mb

er o

f w

ork

ers

Change in Labor Intensity in Top 5 Labour Intensive Goods

Export Performance of Labor Intensive Industries

0

2

4

6

8

10

12

14

16

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Sh

are

in

To

tal

Ex

po

rts

(P

erc

en

tag

e)

Tobacco Garments Sports goods Leather Products (except Footwear)

Export Performance

Share of Manufacturing Exports to India's Total Merchandise Exports

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Years

Sh

are

(P

erc

en

tag

e)

Manufacturing Exports: Cross Country Comparison

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.0019

70

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Years

Sh

are

(Per

cen

tag

e)

China Argentina Brazil India Korea Indonesia

Levels of Manufactured Exports Across Countries

9.94

52.19

542.20

55.0540.55

233.99

95.80

0.00

100.00

200.00

300.00

400.00

500.00

Argentina Brazil China India Indonesia Korea Malaysia

Countries

US

$B

illio

n

High Technology Exports

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Years

Sh

are

in M

anu

fact

ure

d E

xpo

rts

(Per

cen

tag

e)


Change in Composition of Indian Manufactured Exports

2005

4%

13%

28%

12%

11%

23%

9%

1992

10%

12%

17%

19%

17%

20%

5%

Transition to Mass Manufacturing

Value Added by the Manufacturing Sector in Some Major Developing Countries (2004)

36.83

144.95

761.67

111.30

73.02

195.32

37.15

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00


Countries

US

$ B

illio

n

Per Capita Value Added by the Manufacturing Sector in Some Major Developing Countries (2004)

959.13

788.22

587.62

103.08

335.57

406.08

1492.01

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

1600.00


Countries

US

$

Scale of Production of Major Commodities Across CountriesPersonal Computers (2004)

3.70

19.35

52.99

13.03

3.02

26.20

4.90

0.00

10.00

20.00

30.00

40.00

50.00

60.00


Countries

Nu

mb

er

of

PC

s (

Mil

lion

s)

Scale of Production of Major Commodities Across CountriesMotor Vehicles (2005)

319.76

2528.30

5707.69

1626.76

494.55

3699.35

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

Argentina Brazil China India Indonesia Korea

Countries

Nu

mb

er o

f M

oto

r V

ehic

les

(000

s)

Scale of Production of Major Commodities Across CountriesSteel (2005)

5.39

31.62

352.54

38.0847.77

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

Argentina Brazil China India Korea

Countries

Ste

el P

rod

uct

ion

(M

MT

)

Scale of Production of Major Commodities Across Countries

Telephone Mainlines (2004)

8.70

42.38

312.44

43.96

9.99

26.06

4.45

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00


Countries

Tel

eph

on

e M

ain

lines

(M

illio

ns)

Size of Labor Force in Manufacturing Sector

1.36

11.72

160.00

53.06

11.65

4.23 2.02

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00


Countries

Nu

mb

er

of

Wo

rker

s (M

illio

n)

Possible Routes to Achieving Mass Manufacturing in India

Route I : Improve Export Market Share– No sector where India enjoys a big share of exports– Lack of FDI– Role of MNCs

Route II : Expand the Indigenous Market Base– Small size of the domestic market– Low purchasing power

• Need to develop High Quality and Low Price products

Spending on R & D as a percentage of GDP (2003)

0.42

1.03

1.3

0.77

0.2

2.5

0.7

0

0.5

1

1.5

2

2.5

3


Countries

R &

D E

xpen

dit

ure

as

a P

erce

nta

ge

of

GD

P

Researchers Involved in R&D (2003)

715

324

633

120

413

2979

294

0

500

1000

1500

2000

2500

3000

3500


Countries

Res

earc

her

s in

R &

D (

per

mill

ion

peo

ple

)

Use of Foreign Technology (2004)

0.23

0.19

0.29

0.14

0.05

0.57

0.21

0.63

0.39

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Argentina Brazil Chile China India Korea Philippines Thailand Hong Kong

Countries

Am

ou

nt

Sp

en

t o

n R

oya

ltie

s a

nd

Lic

en

se F

ees

(%

of

GD

P)

Number of Resident Patent Filed (2004)

Patent Filings per Million Population

Patent Filings per $Billion GDP

Patent Filings per $Million R&D Expenditures

Argentina 28.41 2.32 0.56

Brazil 21.16 2.81 0.29

China 50.75 9.37 0.71

India 6.65 2.3 0.22

Korea 2188.96 116.19 4.4

USA 645.44 17.7 0.68

Source: World Intellectual Property Organization

Policy Recommendations

Policy Recommendations

(i) Remove Entry Barriers 1. Heavy hand of petty functionaries 2. Clearances 3. Processes

(ii) Remove Exit Barriers

(iii) Weaken distinction between organized and unorganized sector

(iv) Labour market reforms

(v) Improve labour conditions and real wages

(vi) Education Sector Reforms

(vii) Infrastructure

(viii) Foreign Direct Investment

Business

Towards A Competitive Manufacturing Sector