Mixed outlook: Manufacturing needs diversification and jobs focus

The Ministry of Statistics and Programme Implementation recently released the results of the Annual Survey of Industries (ASI) for 2022-23 (FY23). Notably, in FY23, the Indian economy was still recovering from the steep decline in growth observed during the pandemic. However, the results exhibit the resilience of India’s manufacturing in terms of input use, output, and profit. The ASI covers the entire country and remains India’s principal source of industrial statistics. While the manufacturing sector, which contributes around 17 per cent to India’s gross domestic product, did well during the period under review, its relatively small scale and concentration remain matters of concern.

In FY23, gross value added (GVA) in manufacturing at current prices grew around 7.3 per cent relative to the previous year. Industrial output also registered a steep growth rate of 21.45 per cent. It is worth noting that there was a sharp contraction in output in FY20 and FY21, before a bounce-back in FY22 and FY23. Besides, both fixed and invested capital registered positive growth during the reference period. Employment registered a growth rate of 7.43 per cent year-on-year. Average compensation per employee in the sector also went up. Similarly, relative to 2018-19, a pre-pandemic year, GVA per person engaged climbed up almost 26 per cent, indicating an increase in labour productivity in manufacturing. Correspondingly, for the same five-year period, average emoluments rose by only 22 per cent.

The share of profit as a proportion of net value added (NVA) in manufacturing in FY23 remained above that in the pre-pandemic years of 2018-19 and 2019-20, while the share of wages and emoluments paid to workers during the period under consideration remained below the pre-pandemic levels. This is despite a year-on-year decrease in the share of profit to NVA and an increase in the share of wages and emoluments in FY23 over FY22. Clearly, manufacturing in India is becoming more capital-intensive over time. Industrial activity also remains concentrated both geographically and across a few product categories. The ASI results show that only five states — Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh — contributed more than 54 per cent to manufacturing GVA in FY23. Also, basic metals, chemical-product industries, coke and refined petroleum, motor vehicles, and food products, taken together, contributed more than 58 per cent to manufacturing output. In terms of employment, despite the post-pandemic recovery, only a little over 18 million people were employed in manufacturing in 2022-23.

India has consistently underperformed in unskilled and low-skilled manufacturing, and therefore has not been able to create enough jobs in manufacturing to pull people out of agriculture. The concern must extend beyond merely generating jobs to where such employment is being created and what share of output is allocated to workers. Economic growth at the expense of labour-income share will not be sustainable in the long term in a labour-abundant country. Government intervention in the form of lower corporation taxes, single-window clearances, and production-linked incentive schemes has found limited success so far. Towards this end, India will need to constantly work on improving conditions for attracting investment and also ensure that it is not concentrated in a handful of states or in a few capital-intensive product categories.