Can India increase the share of manufacturing in economy?
In India, manufacturing has slowly seen its share reduce in the economy. While services have done relatively better in India, manufacturing has gotten entrenched in economies like China, Thailand, Malaysia, Vietnam and Bangladesh. While China is the factory of the world, electronics have moved to Malaysia and Thailand; and garmenting to Bangladesh, Vietnam, and Sri Lanka.
India has seen some benefit in chemicals, where it already had an ecosystem that no other country could boast of. In the period of globalisation, industries get entrenched in a particular location. The benefits derived from a cluster-based approach are difficult to replicate in a new location, and this leads to dominance of a few countries and few locations in a particular manufacturing activity. Even if another location elsewhere in the globe has an advantage in terms of labour, nearness to market, raw material etc, yet this proves to be inadequate to pull industries to that location, especially with declining duty protection rates under WTO and the gradual opening up of the economy and markets that globalisation demands.
Manufacturers have not been able to enjoy full access to home markets. It has become feasible to access a giant market like India though some other country with whom we may have a trade treaty.
In this situation, it becomes imperative that the government lends a helping hand to industry to take root in a new location.
Luckily in many industries, the market already exists in the country. For example, cell phones, air-conditioning, electronics, etc all have ready markets in the country and are large import categories. For some of these categories, we may already be the largest market in the world.