Demand driven employment oriented growth
The contribution of the manufacturing sector to the Gross domestic Product in India has remained flat for a long period. Manufacturing accounts for employment of 13% of the country’s workforce. Indian exports also have been flat. The 15% manufacturing share is not comparable with 22% of Malaysia, 27% of Thailand and South Korea; and 29% of China. The manufacturing share of GDP is 17%, even in Bangladesh. In India, the flat or slowdown narrative is not uniform across the manufacturing spectrum. The worst hit sectors have been furniture, fabricated metal products, trailers, motor vehicles, paper and paper products. Basic metals, wood, apparel, food, pharma products are stated to have a bright side.
The fact remains that the contribution of manufacturing has remained stagnant. This status poses a serious question about the growth in demand of manufactured goods and its corresponding effects on employment and overall economic growth. There is an increasing concern that domestic demand for other Fast Moving Consumer Goods (FMCGs) has started slowing down.
However, the slowdown in India’s consumption of FMCG also is not across the board. Some categories of mass-market goods like biscuits, salty snacks, soaps and tea have been hurt. Urban and discretionary products like creams, deodorants are growing. Modern trade and e commerce suits the fulfilment of demand in these types of products. Consumption in rural India, has been under stress over the past three quarters as reported in The Economic Times of 27th August,19 (p1).
We need to have impact assessment studies of the ‘Make in India’ initiatives. Vents of exports are constrained in the face of global competition. We need to explore the solutions of increasing domestic demand. Demand is willingness backed by purchasing power. Good or bad, willingness is widely prevalent for consumerism. There has been a decline in the number of applications for car loans. That could be because of increasing preference for non-ownership of cars for the advent of Uber/Ola- this is a matter of debate. Attention is focussed on the auto sector which is stated to contribute a third of consumption slowdown. Non auto consumption items are responsible for twice as much.
Affordable credit or cash in hand will back the demand for the consumer durables and non-durables as well. If the interest rates go down, EMIs will fall. Consumers will not hold back their spending. Consumers are not in isolation as far as exchange flows are concerned. They sell their services in the job market. That market should be able to generate employment, Low cost housing, infrastructure sector including roads and highways are sectors which are employment intensive. They have multiplier effects. To that extent, we need to make investment in development of infrastructure and skilled work force for the sustenance of the sectors.
Recently, the RBI has decided to transfer ‘excess capital’ to the government. The impact is to be observed and assessed. Liquidity with affordable credit flows to key sectors are likely to make an impact