Transcript Towards a Competitive Manufacturing Sector

Towards a Competitive
Manufacturing Sector
By
Rajiv Kumar
Director and Chief Executive, ICRIER
Outline
•
•
•
•
•
•
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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
55
50
45
35
30
25
20
15
10
5
Years
Manufacturing
Agriculture
Services
Industry
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
0
1965
Share in GDP (%)
40
Cross Country Comparison
Share of Manufacturing Sector (2004)
45.00
39.41
40.00
35.00
31.40
Share in GDP
30.00
25.00
24.07
28.34
28.74
Indonesia
Korea
24.00
20.00
16.10
15.00
10.00
5.00
0.00
Argentina
Brazil
India
China
Countries
Malaysia
Composition of Manufacturing Sector Across Countries
100%
11.99
3.80
7.82
11.00
90%
80%
29.60
28.06
Share (Percentage)
70%
38.24
34.75
60%
50%
32.35
20.59
44.98
40%
40.90
30%
13.27
20%
15.22
8.10
8.83
9.50
8.24
KOR
MYS
20.39
10%
12.37
0%
CHN
IND
Countries
Chemicals
FBT
Mach & Transp
Others
Textiles
Growth of Indian Industry
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
1950-54
1955-59
1960-64
Mining
1965-69
1970-74
1975-79
Electricity
1980-84
1985-89
1990-94
1995-99
2000-04
Manufacturing
2004-06
Growth of Components of Manufacturing Sector
Growth of Manufacturing Gross Value Added (%)
9.0
8.0
Growth Rate (percentage)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1950-59
1960-69
1970-79
1980-89
1990-99
2000-04
Years
Manufacturing
Registered
Unregistered
-5
-10
Quarters
Q1 2006-07
Q2 2005-06
Q3 2004-05
Q4 2003-04
Q1 2003-04
Q2 2002-03
Q3 2001-02
Q4 2000-01
Q1 2000-01
Q2 1999-00
Q3 1998-99
Q4 1997-98
Q1 1997-98
Q2 1996-97
Q3 1995-96
Q4 1994-95
Q1 1994-95
Q2 1993-94
Q3 1992-93
Q4 1991-92
Q1 1991-92
Q2 1990-91
Q3 1989-90
Q4 1988-89
Q1 1988-89
Q2 1987-88
Q3 1986-87
Q4 1985-86
Q1 1985-86
Q2 1984-85
Q3 1983-84
Q4 1982-83
Q1 1982-83
Growth Rate (Percentage)
Performance of the Manufacturing Sector
25
20
15
10
5
0
Electricity
Coal
Steel
Petroleum Crude
Manufacturing
Years
Cement
2005/06
2004/05
2003/04
2002/03
2001/02
2000/01
1999/00
1998/99
1997/98
1996/97
1995/96
1994/95
1993/94
1992/93
1991/92
1990/91
1989/90
1988/89
1987/88
1986/87
1985/86
1984/85
1983/84
1982/83
1981/82
Index of Industrial Production
Comparison of the Manufacturing with Other Core Sectors
300.0
250.0
200.0
150.0
100.0
50.0
0.0
Electricity
Coal
Steel
Cement
Petroleum Crude
Years
Manufacturing
2004/05
2003/04
2002/03
2001/02
2000/01
1999/00
1998/99
1997/98
1996/97
1995/96
1994/95
1993/94
1992/93
1991/92
1990/91
1989/90
1988/89
1987/88
1986/87
1985/86
1984/85
1983/84
1982/83
1981/82
Growth Rate (Percentage)
Comparison of the Manufacturing with Other Core Sectors
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
-5.00
-10.00
-15.00
Change in Composition of the Manufacturing Output
3%
2%
4%
2003-04
1990-91
1980-81
3%
6%
3%
5%
16%
3%
16%
16%
6%
5%
4%
3%
6%
5%
4%
8%
11%
15%
1%
15%
1%
0%
15%
3%
1%
17%
2%
1%
0%
1%
3%
1%
14%
3%
3%
3%
8%
14%
3%
9%
3%
4%
3%
14%
14%
Regional Disparities in India
Statewise Decomposition of Manufacturing Output
1970-71
1990-91
2003-04
Other
1%
Del
2%
Del
Ker 2%
Pun 3%
3%
Other
4%
Bih +Jha
5%
MP + Cha
4%
Pun
5%
Raj
2%
Kar WB
7% 4%
MP + Cha
5%
Pun
4%
Ker
3%
Other
4%
Bih +Jha
3%
MP + Cha
5%
Raj
3%
Raj
3%
WB
6%
UP + Utt
7%
WB
13%
Bih +Jha
5%
Ker
2%
Del
1%
UP + Utt
8%
UP + Utt Har
5%
10%
Har
4%
Kar
5%
Har
2%
Kar
4%
Mah
26%
AP
6%
AP
5%
Mah
24%
TN
11%
TN
10%
Guj
10%
Mah
18%
AP
7%
TN
11%
Guj
11%
Guj
17%
Contribution of States to Output and Employment in
Manufacturing
2003-04
Del
1%
Pun
4%
Ker
3%
2003-04
Other
4%
Bih +Jha
3%
MP + Cha
5%
Del
Har 1%
4%
Raj
3%
WB
4%
MP + Cha
3%
Raj
3%
UP + Utt
8%
Pun
4%
UP + Utt
8%
Har
5%
Bih +Jha
Other
3%
6%
Ker
5%
Kar
7%
Mah
13%
Kar
6%
Mah
18%
AP
7%
WB
7%
Guj
9%
TN
11%
Guj
17%
Decomposition of Output
AP
12%
TN
16%
Decomposition of Employment
Significance of Power for the Manufacturing Sector
Guj
25
Goa
TN
20
Mah
Har
15
Kar
MP & Cha
UP & Utt AP
Pun
WB
Raj
10
Ker
20
30
40
50
Share of Power Devoted to Industrial Sector
Share of Manufacturing in GDP
Fitted values
60
Significance of Roads for the Manufacturing Sector
Guj
25
Goa
Mah
20
TN
Har
15
Kar
MP &WB
Cha
Pun
AP
UP
Raj& Utt
10
Ker
20
40
60
Share of Surfaced Roads
Share of Manufacturing in GDP
80
Fitted values
100
Significance of Higher Education for the Manufacturing Sector
Guj
25
Goa
Mah
20
TN
Har
15
Kar
MP & Cha
Raj
WB
UP & Utt
Pun
AP
10
Ker
3
4
5
6
Share of Students Enrolled in Higher Education
Share of Manufacturing in GDP
Fitted values
7
30
Relationship Between Per Capita GDP and Manufacturing
Guj
25
Goa
20
TN
Mah
Har
15
Kar
WB
MP & Cha
Pun
UP & Utt Raj AP
10
Ker
0
10000
20000
Per Capita GDP
Share of Manufacturing in GDP
30000
Fitted values
40000
Performance of the Unorganized Sector
Share of Unorganized and Organized Manufacturing in Valued
Added and Employment (2000-01)
Workers (Percent)
Sectors
Gross Value Added (Percent)
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
75.24
Source: 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
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
3.9
-0.91
2.89
2.05
4.1
0.82
Transport Equipment
1.44
0.02
Other Manufacturing (Including Wood)
1.29
3.88
Food, Beverages and Tobacco
Basic Metals
Metal Products
Machinery and Equipment
Note: * Period covered for Unorganized Manufacturing is 1989-90 to 2000-01.
** Period covered for Organized Manufacturing is 1990-91 to 2003-04
Source: Annual Survey of Industries and NSS reports, various years
Years
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
1989-90
1988-89
1987-88
1986-87
1985-86
1984-85
1983-84
1982-83
1981-82
1980-81
1979-80
1978-79
1977-78
1976-77
1975-76
1974-75
1973-74
Number of workers
Employment in Organized Manufacturing Sector
8000000
7500000
7000000
6500000
6000000
5500000
5000000
4500000
4000000
Change in Labor Intensity in Top 5 Labour Intensive
Goods
Export Performance of Labor Intensive Industries
16
14
Share in Total Exports (Percentage)
12
10
8
6
4
2
0
1992
1993
1994
1995
Tobacco
1996
1997
Garments
1998
1999
Sports goods
2000
2001
2002
2003
Leather Products (except Footwear)
2004
2005
Export Performance
Share of Manufacturing Exports to India's Total
Merchandise Exports
90.0
80.0
70.0
50.0
40.0
30.0
20.0
10.0
Years
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
0.0
1962
Share (Percentage)
60.0
China
Argentina
Brazil
India
Korea
Years
Indonesia
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
Share (Percentage)
Manufacturing Exports: Cross Country Comparison
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Levels of Manufactured Exports Across Countries
542.20
500.00
US $Billion
400.00
300.00
233.99
200.00
95.80
100.00
55.05
52.19
40.55
9.94
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
High Technology Exports
70.00
Share in Manufactured Exports (Percentage)
60.00
50.00
40.00
30.00
20.00
10.00
0.00
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Years
Argentina
Brazil
China
India
Indonesia
Korea
Malaysia
2004
Change in Composition of Indian Manufactured Exports
1992
5%
2005
10%
4%
9%
13%
20%
12%
23%
17%
28%
17%
11%
19%
12%
Transition to Mass Manufacturing
800.00
Value Added by the Manufacturing Sector in Some
Major Developing Countries (2004)
761.67
700.00
600.00
US $ Billion
500.00
400.00
300.00
195.32
200.00
144.95
111.30
100.00
73.02
37.15
36.83
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
Per Capita Value Added by the Manufacturing Sector in Some
Major Developing Countries (2004)
1600.00
1492.01
1400.00
1200.00
US $
1000.00
959.13
788.22
800.00
587.62
600.00
406.08
400.00
335.57
200.00
103.08
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
Scale of Production of Major Commodities Across Countries
Personal Computers (2004)
60.00
52.99
Number of PCs (Millions)
50.00
40.00
30.00
26.20
19.35
20.00
13.03
10.00
4.90
3.70
3.02
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
Scale of Production of Major Commodities Across Countries
Motor Vehicles (2005)
6000.00
5707.69
Number of Motor Vehicles (000s)
5000.00
4000.00
3699.35
3000.00
2528.30
2000.00
1626.76
1000.00
494.55
319.76
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Scale of Production of Major Commodities Across Countries
Steel (2005)
400.00
352.54
350.00
Steel Production (MMT)
300.00
250.00
200.00
150.00
100.00
50.00
38.08
31.62
47.77
5.39
0.00
Argentina
Brazil
China
Countries
India
Korea
Scale of Production of Major Commodities Across Countries
Telephone Mainlines (2004)
350.00
312.44
Telephone Mainlines (Millions)
300.00
250.00
200.00
150.00
100.00
43.96
42.38
50.00
26.06
9.99
8.70
4.45
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
Size of Labor Force in Manufacturing Sector
180.00
160.00
160.00
Number of Workers (Million)
140.00
120.00
100.00
80.00
60.00
53.06
40.00
20.00
11.72
11.65
1.36
4.23
2.02
Korea
Malaysia
0.00
Argentina
Brazil
China
India
Countries
Indonesia
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)
3
2.5
R & D Expenditure as a Percentage of GDP
2.5
2
1.5
1.3
1.03
1
0.77
0.5
0.7
0.42
0.2
0
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
Researchers Involved in R&D (2003)
3500
2979
Researchers in R & D (per million people)
3000
2500
2000
1500
1000
715
633
413
500
324
294
120
0
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
Use of Foreign Technology (2004)
0.70
0.63
Amount Spent on Royalties and License Fees (% of GDP)
0.60
0.57
0.50
0.39
0.40
0.29
0.30
0.23
0.21
0.19
0.20
0.14
0.10
0.05
0.00
Argentina
Brazil
Chile
China
India
Countries
Korea
Philippines
Thailand
Hong Kong
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
2188.96
116.19
4.4
645.44
17.7
0.68
Korea
USA
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