India’s exports shrank for the third straight month in October with 18 of the major export items showing a decline. A silver lining is the improved show by labour intensive sectors such as as gems & jewellery, pharmaceuticals, marine products and engineering goods. Weak exports will affect the country’s economic growth prospects at a time when the GDP is expanding at the slowest pace since 2014. A robust manufacturing sector is key to exports growth and this thinking was behind Prime Minister Narendra Modi’s flagship programme, Make in India. But the plan to make India a manufacturing giant is weighed down by the government’s inability to push its reform agenda, lack of reliable power supply, high inputs costs and the lack of a skilled workforce. There were expectations that India will be one of the beneficiaries of the US-China trade war, but smaller countries such as Vietnam, Malaysia and Philippines seem to have pipped India in attracting the multinationals looking to shift out of China.
Unfinished reforms agenda
India has a long list of unfinished reforms, the biggest hurdle that stops it from becoming an exporting nation like China. Despite several steps taken by the Modi government to improve the ease of doing business in the country, global manufacturing majors seem to be shying away from setting up base here. The main reasons cited by them is the restrictive laws governing labour and land acquisition. These two areas remain the biggest hurdles for new businesses, despite easing in many other areas.
Reliable power supply
The southeast Asian nations have been successful in attracting foreign because of the robust power infrastructure built over years. The government’s draft five-year plan for the power sector focuses on efficient supply and optimum generation, but India’s obscure tariff plans and lack of last-mile infrastructure will play spoilsport in efforts to modernise the system. India is the only country among industrialised and emerging nations where industrial power tariffs are higher than those for households. Power is expensive in India and taxes are prohibitive. Historically industrial users are subsidising power supply to households and agriculture. The government needs to shed this practice to have a viable manufacturing industry.
Skilling the workforce
The biggest challenge face by industrialisation in India is that the large number of people who join the labour force every year doesn’t have the skillsets required by the industry. The new workers need to be skilled and made employable. It is estimated that around seven crore people will join India’s labour force by 2023. The country needs to step up its efforts to skill/reskill them. The government needs to collaborate with the industry to achieve desired skilling outcomes. Unless India’s young population is given basic education and skills training, the demographic dividend will turn into a nightmare.