|Wednesday, 02 March 2011 00:00|
For a finance minister who wants to increase the share of manufacturing in overall GDP, the Q3 data has to be quite worrying. While the finance minister is looking to increase the share of manufacturing from around 16% right now to 25% over a decade, manufacturing growth slowed from 13% in the year’s first quarter to 9.8% in the second and just 5.6% in the third. Given that the January to March period in 2010 was one of exceptionally strong growth (manufacturing grew 16.3%), when the Q4 data comes in, it’s likely to show a further slowing. In which case, the year’s advance estimate of GDP growing 8.8% is unlikely to be met. Most growth, apart from agriculture, which has grown off the charts, thanks to a negative growth in 2009-10, has slowed—so overall GDP growth has slowed from 8.9% in Q1 to 8.2% in Q3. Investment-to-GDP levels, similarly, have fallen from 32.6% in Q1 to 27.3% in Q3. If today’s rally in the market is followed up with increased investments, as CMIE says its CapEx database suggests will be the case, this may not be a worry in the coming year—either way, this is an area that needs constant monitoring.
Given the fall in manufacturing growth, it will be interesting to see how the government hopes to meet its targets. A 25% share in a decade means industry will have to grow by 12-13% annually for the next decade, a growth few countries have achieved on a sustained basis. It requires not just a manifold hike in investment levels, it cannot take place unless there is a complete overhaul of policies that restrict industry today, whether it is the availability of land, environmental clearances, restrictive labour laws, the lack of availability of skilled labour (TeamLease estimates around 58% of the youth workforce suffers from an employability defect), an education system that doesn’t result in more innovation (India’s share in the Top 500 global universities remained at 0.4% over the last four years while China’s went up from 1.8% to 6.8%) … basically, all the indices that keep India way down on the Doing Business index need to get fixed. That’s a tall order for the manufacturing policy that is supposed to make this transformation happen.