Model Answer
0 min readIntroduction
India’s manufacturing sector, envisioned as a key driver of economic growth and employment under initiatives like ‘Make in India’ (launched in 2014), has consistently fallen short of its potential, particularly in generating labour-intensive exports. While manufacturing contributes significantly to GDP, its employment elasticity – the percentage change in employment for a percentage change in manufacturing output – remains relatively low. This is largely due to a preference for capital-intensive production methods, hindering the creation of substantial employment opportunities for India’s vast workforce. The focus has been on high-value, low-volume exports rather than labour-intensive, high-volume ones.
Reasons for Failure of Labour-Intensive Exports
Several factors contribute to the manufacturing sector’s inability to achieve labour-intensive export goals:
- Scale of Production: Indian firms often operate at smaller scales compared to their global counterparts, limiting their ability to achieve economies of scale necessary for competitive pricing in labour-intensive sectors.
- Infrastructure Deficiencies: Inadequate infrastructure – including power, transportation, and logistics – increases production costs and reduces efficiency, making it difficult to compete in global markets.
- Skill Gap: A significant skill gap exists between the requirements of the manufacturing sector and the available workforce. Lack of vocational training and industry-relevant skills hinders labour absorption.
- Labour Laws: Rigid labour laws, particularly those related to hiring and firing, discourage firms from expanding their workforce and investing in labour-intensive technologies.
- Technological Leapfrogging: Many Indian manufacturers have directly adopted advanced, capital-intensive technologies, bypassing the stages of labour-intensive development seen in other Asian economies.
- Trade Barriers: Non-tariff barriers and limited access to international markets restrict the growth of labour-intensive exports.
Shifting Towards Labour-Intensive Exports: Measures
To promote labour-intensive exports, the following measures are crucial:
1. Policy Reforms
- Labour Law Reforms: Streamlining labour laws to provide greater flexibility for firms, while ensuring worker protection, is essential. This includes simplifying hiring and firing procedures and promoting fixed-term employment.
- MSME Support: Strengthening Micro, Small, and Medium Enterprises (MSMEs) through access to credit, technology upgrades, and market linkages. MSMEs are key drivers of labour-intensive manufacturing.
- Export Promotion Schemes: Expanding and refining export promotion schemes like the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to incentivize labour-intensive exports.
2. Infrastructure Development
- Dedicated Manufacturing Corridors: Developing dedicated manufacturing corridors with integrated infrastructure facilities – including power, water, transportation, and logistics – to reduce production costs. The Delhi-Mumbai Industrial Corridor (DMIC) is an example, but needs wider replication.
- Logistics Efficiency: Improving logistics efficiency through investments in ports, roads, and railways, and implementing digital logistics solutions.
3. Skill Development
- Vocational Training: Expanding vocational training programs aligned with the needs of the manufacturing sector, focusing on skills relevant to labour-intensive industries like textiles, leather, and footwear. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) needs to be more industry-focused.
- Industry-Academia Collaboration: Strengthening collaboration between industry and academic institutions to develop curricula and training programs that meet industry requirements.
4. Technological Upgradation with Labour Focus
Instead of directly adopting highly automated technologies, focus on appropriate technology that complements labour. This includes:
- Incremental Automation: Promoting incremental automation that enhances productivity without displacing large numbers of workers.
- Technology Transfer: Facilitating technology transfer from countries that have successfully developed labour-intensive manufacturing sectors.
5. Trade Policy
- Bilateral Trade Agreements: Negotiating bilateral trade agreements that provide preferential access to markets for Indian labour-intensive exports.
- Reducing Non-Tariff Barriers: Actively working to reduce non-tariff barriers to trade, such as stringent quality standards and regulatory hurdles.
Data on Sectoral Contribution (as of 2022-23): According to the National Statistical Office (NSO), the manufacturing sector contributed approximately 17% to India’s GDP and employed around 12% of the workforce. This highlights the gap between contribution and employment generation.
Conclusion
Achieving the goal of labour-intensive exports requires a holistic approach that addresses the structural constraints facing the manufacturing sector. Policy reforms, infrastructure development, skill development, and strategic trade policies are all essential components. A shift in focus from capital-intensive to labour-intensive technologies, coupled with support for MSMEs, can unlock the sector’s potential to generate substantial employment and contribute to inclusive economic growth. Prioritizing labour-intensive manufacturing is not merely an economic imperative but also a social one, given India’s demographic dividend.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.