Labour-intensive manufacturing segments facing external headwinds

Experts say manufacturing is declining due to a slump in overseas demand and production-linked incentive schemes will take time to yield results

A commerce ministry official recently attributed the fall in imports in January to the Make in India programme. Imports declined 3.63 per cent in January and 3.46 per cent in December. However, the performance of different manufacturing segments does not give confidence that 'Make in India' has taken off to a great height

In fact, malady in manufacturing is much more serious than displayed by the headline number in the index of industrial production (IIP). The headline number showed that manufacturing grew by just 2.6 per cent in December compared to 6.4 per cent in November. Of nine months so far, manufacturing declined two times -- 5.9 per cent in October and 0.4 per cent in August. Overall, manufacturing rose just 4.8 per cent in the first nine months of 2022-23 against 16.1 per cent in the corresponding period of the previous financial year. Last year, growth is not the correct measurement due to low base in 2020-21, which saw Covid-induced lockdowns. This 4.8 per cent growth also came due to two high growth months of May and June which saw growth at 20.7 per cent and 12.9 per cent respectively due to low base in the previous month due to the second Covid wave.

However, the problem is much more serious. For instance, 11 manufacturing industries showed a decline in output in December. These constitute almost half of the total 23 industries.

Also, these included labour-intensive segments of textiles, apparel, and leather as well as technologically intensive products such as computer, electronic and optical products. December was not the only month that saw a high number of segments showing a fall in production. However, it was the second-highest this financial year. In October, production in 17 segments contracted. Since July at least seven segments have shown a decline in production.

Labour-intensive industries such as textiles and leather were hit mainly in these months. For instance, textiles declined 8.5 per cent and leather 5.8 per cent in the first nine months of the current financial year even despite skewed performance in May. Textiles had fallen by three per cent even in June and leather rose by just 0.9 per cent in the month year-on-year (YoY). The two industries declined despite a fall in the corresponding period of the previous year too.

Experts say manufacturing is declining due to a slump in overseas demand and production-linked incentive (PLI) schemes will take time to yield results.

Former chief statistician Pronab Sen said PLI is essentially targeted at large companies. It was primarily targeted at exports.

Investments in large industries take one and a half years to two and a half years to fructify, he said. It is taking more than that because overseas demand has collapsed, Sen said.

The government had announced PLI for 13 sectors to boost the country's capabilities and exports for 13 key sectors.

The scheme, later extended to one more sector (Drone), aims to give companies incentives for incremental sales from products manufactured in domestic units.

Ranen Banerjee, partner, economic advisory services, PwC, said the textiles, apparel, leather, and gems and jewellery sectors are getting impacted due to the global economic headwinds having an impact on global demand for these products.

The exports of these items have seen a contraction and weak order books for exports and anticipated further slowdown is having an impact on outputs for these sectors, he said.

Computers and electronic items are also showing weakness given the weakness we are seeing in the consumer durables sector, according to Banerjee.

"There is also a lagged effect as these products were purchased in very high volumes by many households as the world moved online including education during the Covid lockdown. Replacement demand is yet to kick in for these products in such households," he said.