- Issue Briefs and Special Reports
- Aug 12 2015
India's small-scale industries contribute 15 percent to GDP yet they have been long ignored, receiving little policy support and inadequate infrastructure. As they have the potential to transform the socioeconomic architecture of the country, policy interventions are necessary to make small enterprises more efficient and achieve higher growth rates. This paper describes initiatives to propel India's small-scale industries.
India currently stands on the brink of being reckoned as the fastest growing economy in the world: In 2016, its projected growth rate is 7.6 percent. Prime Minister Narendra Modi’s flagship I’Make in India’ programme is expected to herald India into its era of growth. This lion of a campaign-which aims to boost the manufacturing sector-has roared defiantly in both the domestic and international arena and promises economic development.
India’s demographic dividend is considered to be its biggest asset. It also is, however, a potential liability: With more than 65 percent of the population below the age of 35, the looming danger of unmanageable unemployment hangs heavy. Over the last few years, the services sector has carried the burden of economic growth; however, with its 64.8-percent share in the GDP, the services sector accounts for only 26.8 percent of employment. What is thus crucial for the ‘Make in India’ initiative is employment generation for the 12 million individuals entering the workforce every year. Further, the hourly labour wage in India is estimated at $1.46 as against the $1.74 wage rate in China. This opens a huge window of opportunity for India to attract investments which will in turn spur on domestic manufacturing.
It has become an imperative, given how manufacturing growth has stagnated in the last few years. The sector’s current contribution to GDP is 16 percent. Its share in export is abysmal, with exports being dominated by skill-intensive industries such as automobiles and engineering goods. Such performance in manufacturing is in stark contrast to those of countries like China, Japan, and Germany. China, for example, contributes 13.7 percent to world manufacturing; India contributes less than 2 percent. The need of the hour is to push the manufacturing sector on the path of competitiveness and competency.
While ‘Make in India’ is a laudable initiative, there is a more specific task for policy-makers: The field of vision needs to be narrowed to small domestic players who define the nation’s manufacturing landscape. The micro, small and medium enterprises (MSMEs) currently employ 12 crore individuals and contribute 15 percent to GDP. With its growth rate outpacing that of the Indian economy, smallscale businesses yield the power to transform the socio-economic architecture of the country. However, these small-scale industries have been long ignored in spite of their contribution to the Indian economy. Such situation is uninformed, given that small-scale industries have the potential to be the backbone of economic growth through appropriate institutional and statutory mechanisms which may be accorded them.
Since the Modi government came to power in May 2014, efforts have been made to bring MSMEs to the forefront of the economy. The focus has been on addressing problems that weaken the foundation and hamper the growth of these industries, primarily, credit, marketing and inefficiency. This paper focuses on the initiatives launched to help small-scale industries achieve the projected growth rate of 25 percent by 2022, along with areas in which policy interventions are necessary.