[Solved] Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports.Suggest measures for more labour-intensive rather than capital-intensive exports. ( UPSC GS-3 Mains 2017)
Indian manufacturing sector contributes close to 17% to GDP. By 2020 it is expected to be major manufacturing destination. Indian manufacturing sector had gone through a transition from the initial industrialization and license raj phase to liberalization and the current phase of global competitiveness.
However, India’s share of global manufacturing stands at little over 2 percent. China has meanwhile over the years positioned itself as the workshop of the world, accounting for 22.4 percent of global manufacturing.
Reasons for low labour Intensive exports: India’s growth success has been driven by service-producing industries that mostly employ relatively skilled labor. Even within the manufacturing sector, India tends to specialize in relatively skill- and capital-intensive activities. This is despite the fact that that India’s true comparative advantage lies in unskilled labor-intensive activities.
• Poor credit availability for MSME: MSME are largely responsible for labour intensive exports, however, our credit structure is biased in favour of large corporates which are capital intensive, who not only get credit cheaply, but also very easily.
• Slow growth of industries, due to lack of labour reforms and exit policy, that mainly employ low-skilled workers has caused manufacturing as a share of GDP to remain constant at about 16-17% during the two decades of economic liberalization.
• Today, a large and growing share of international trade consists of intermediate and unfinished goods shipped from one country to another to combine manufacturing or services. India’s import substitution policy regime created a bias in favor of capital- and skill-intensive manufacturing, and the reforms have not been comprehensive enough to remove this bias.
• In addition, trade is necessary for vertical FDI, and trade costs are high in India, because of inefficient infrastructure, burdensome regulatory environment, and poor trade facilitation. India’s labor laws hobble labor-intensive manufacturing.
Measures to Shift to Labour intensive rather than Capital Intensive
• Improving physical infrastructure from transport systems to the power sector is essential.
• Improving access to finance for smaller enterprises.
• Making a firm’s entry and exit easier.
• Enhancing the flexibility of labour regulations.
Low-cost manufacturing is important for India. If India has to raise its share of manufacturing in GDP to around 25%, industry will have to significantly step up its R&D expenditure. This must be addressed by the new industrial policy. The quantum of value addition has to be increased at all levels. Larger the value addition, greater the positive externalities.
- The movement of workers out of agriculture into export oriented manufacturing industry has been especially slow due to requirement of a certain level of skill which is absent amongst most labourers – resulting in jobless growth. Lack of ease of doing business in India due to labour market rigidities, tax uncertainties, impediments to entrepreneurial growth have further hindered the expansion of a labour-intensive export manufacturing in India.
- Measure to Promote Labour-Intensive Exports
- Ease Labour Law regulationssuch as wide-ranging and complex laws, mandatory contributions by low-paid workers, and lack of flexibility in part-time work etc. The government’s decision to rationalise around 38 Labour Acts by framing 4 labour codes is a positive step in this regard to encourage exporters to hire more labour.
- Promoting Labour-Intensive Sectorslike apparel sector, leather and footwear also have high export potential.
- Uninterrupted and Cheap Power Supplyfor labour-intensive manufacturers, who operate on low profit margins and for whom high electricity costs can be a make or break issue.
- Promoting the Role of SMEsas labour intensity of SMEs is four times higher than that of large firms by providing adequate state support. MUDRA Bank should be promoted for this.
- Skill developmentto fill the gap of semi-skilled and skilled workers that manufacturers in India face frequently.
- Our development model itself is capital intensive rather labour-intensive, since the globalization started many foreigners are coming and investing huge amount. Even today we talk about how much investment we got instead of how much employment that it has created. In order to create a conducive environment to encourage labour-intensive exports.
- Govt must encourage the labour-intensive industries/sectors like,apparel ,leather industries.
- Export promotion schemes for labour intensive sector must be implemented.
- Labour laws are need to be relaxed
- Skill development of people
- Tax relaxations must be provided to such industries.
- Ensure quality of product by improving the process according to the international standards
- Create a separate industrial corridors for labour intensive sector industries
- Govt must reduce the burden on the employer in case of the social security benefit contributions Conclude agreements with foreign countries inorder to promote the exports of these product.
Further reading…
A lacuna in India’s growth has been the slow growth of manufacturing in the labour-intensive sector. The movement of the workers from agriculture into export-oriented manufacturing industries has been slow owing to the requirement of a certain skill set, which is absent among most of the labourers thus resulting in jobless growth.
Lack of ease of doing business in India due to labour market rigidity, an impediment to entrepreneurial growth and tax uncertainty has further increased expansion of labour-intensive export manufacturing in the country.
Promoting labour-intensive exports
- Easing of labour law regulations which include wide-ranging and complex labour laws, mandatory contributions made by low paid workers and lack of flexibility in case of part-time work. The government’s decision to rationalise the labour laws by framing four labour codes is a positive step in this regard to encourage exporters.
- Promotion of labour-intensive sectors like leather, apparel and footwear sector which also has high export potential.
- Promotion of the role of Small and Medium enterprises as the labour intensity of the SMEs is four times higher than that of larger firms by the provision of adequate state support.
- Availability of Cheap power supply for labour-intensive manufacturers who operate on low-profit margins and for whom high electricity costs can result in operating issues.
Further, there is a need to fill in the gap of skills for labourers, to help provide employment in case of the manufacturing sector.
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