THE ROLE OF

MANUFACTURING
SECTOR IN GROWTH

Project Submitted by Group 3: -

Ajitava Deb EPGP-12A-006

Anirban Das EPGP-12A-021
Anirban Kar EPGP-12A-022
Souvik Sengupta EPGP-12A-108
Sumantra Sarathi Haldar EPGP-12A-114

Economic Environment
EPGP 12
Indian Institute of Management, Kozhikode
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“The Role of Manufacturing Sector in Economic Growth”

Introduction

Manufacturing industry has always been a key factor in driving the development of a nation in terms of power
and economic growth. Over the last century, exponential improvements in Science & Technology coupled with
strategic production initiatives have contributed extensively to the growth of the global economy. The sector not
only contributes directly to the GDP of a country, it fosters and nurtures domestic employment in a country
which indirectly adds value to the overall economic growth of a country.

This report analyses how Manufacturing sector contributes to the economic growth and the key challenges and
initiatives around it, primarily focussed on the Indian context. The following key areas have been analysed and
discussed in this report: -

• Contribution of Manufacturing Sector in GDP

• Contribution of Manufacturing Sector in GVA
• Contribution of Manufacturing Sector in Employment
• Manufacturing Value Added (MVA) to GDP
• Current Scenario of Manufacturing sector in India
• Impact of Covid19 on the Manufacturing sector
• The way forward
• Government initiatives
• Some additional discussions –
o Impact of Manufacturing 4.0 on Economic Growth
o Sustainable Manufacturing with Circular Economy

Contribution of Manufacturing Sector in GDP – Indian Context

The Gross Domestic Product measures the value of economic activity within a country. GDP is the sum of the
market values of all goods and services produced within a country in a given period of time.
On analysing the below data from “Ministry of Statistics & Program Implementation” and “Trading economics”
(https://tradingeconomics.com/india/gdp-from-manufacturing?continent=america/forecast), we come across the
following facts: -

q Manufacturing industry is one of the

top contributing industries in terms of
GDP share.

q Manufacturing industry accounts for

26% of GDP.

q There has been a 3% drop in GDP

share of Manufacturing in India in
Particulars Last Previous Highest Lowest Unit
Q4’2019 from Q3’2019. GDP Annual Growth Rate 4.7 5.1 11.4 -5.2 percent
GDP 2800 2718.73 2800 37.03 USD Billion
q Indian GDP From Manufacturing is GDP Constant Prices 36650.03 36071.57 37198.3 7500.43 INR Billion
INR Tens Of
projected to reach 5819.00 INR Gross National Product 14522931 13954956 14522931 8659505
Million
Billion in 2021 and 6052.00 INR Gross Fixed Capital Formation 10718.87 10333.44 11421.62 2021.9 INR Billion

Billion in 2022, as per Trading GDP per capita 2104.2 1987.3 2104.2 330.2 USD
GDP per capita PPP 6899.2 6516.2 6899.2 1887 USD
Economics article mentioned above. GDP From Agriculture 6091.05 3664.29 6091.05 2690.74 INR Billion
GDP From Construction 2601.7 2448.63 2636.53 1861.37 INR Billion
GDP From Manufacturing 5593.35 5771.84 6167.49 3331.04 INR Billion
GDP From Mining 854.29 698.9 1139.86 556.18 INR Billion
GDP From Public Administration 4749.47 4614.87 4749.47 2328.98 INR Billion
GDP From Utilities 728.17 795.25 816.28 463.02 INR Billion
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Contribution of Manufacturing Sector in GVA - Indian Context

Gross value added (GVA) is the value of output less the value of intermediate consumption. GVA is a very
important measure, because it is used to determine gross domestic product (GDP).
On analysing the below data from “Enenit website” (http://enenit.com/2019/07/26/sector-wise-contribution-of-
gdp-of-india/), we come across the following facts: -

q Manufacturing sector
accounts for 17% of total
India's GVA of 169.61 lakh
crore INR in 2018-19.

q Manufacturing industry
has the second largest
GVA share after the
Services sector which
accounts for 54% of
India’s GVA.

Contribution of Manufacturing sector in Employment – Indian Context

The contribution of Manufacturing industry in domestic employment growth has been rising over the last few
decades. However, an analysis of the “India Employment Report 2017, by IMA” shows that Manufacturing
Employment percentage has decreased in 2015-16 after an increase in 2011-12 from 2004-05.
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Manufacturing value added (MVA) as percent of GDP

Manufacturing Value Added (MVA) is a measure of manufacturing output as share of a country’s economy.
The value added is the net output of the manufacturing sector, calculated after adding up all the outputs and
subtracting the intermediate inputs.
q MVA is a well-recognized and
widely used indicator by
researchers and policy makers to
assess the level of industrialization
of a country.

q The share of MVA in GDP reflects

the role of manufacturing in the
economy and a country’s national
development in general.

q The MVA in GDP has come to

14.82 in 2018 from a level of 17.1
in 2010.

Source: https://data.worldbank.org/indicator/NV.IND.MANF.ZS

Manufacturing Sector in India – Current Scenario

The growth of India’s GDP has declined largely due to low growth in manufacturing and construction, minister of
state for statistics and programme implementation informed at Lok Sabha in Feb’20.

q India’s overall GDP movement went down from 9% in 2016 to 5.27% in 2019 (Source - Covid-19 : Indian
Perspective by Boston Consulting Group, date 20/03/2020)

q Purchasing Managers’ Index (PMI),

compiled by IHS Markit, rose from 52.7
in December to 55.3 in January, the
highest in ten years.

q India April manufacturing PMI was at

all-time low of 27.4 mainly due to
nationwide lockdown from last 53 days
due to COVID19.

q April data pointed to an unprecedented

contraction in Indian manufacturing
output.

Source:
https://tradingeconomics.com/india/manufacturing-pmi
 5

q Orders fell for the first time in two and-

a-half years and at the sharpest rate in
the history, far outpacing that seen
during the global financial crisis.

q Global GDP is now forecast to contract

2.4% in 2020, compared to earlier
estimate of 0.4% growth. CRISIL
revised Indian growth outlook to 1.8%
from previously estimated 3.5% for
fiscal 2021.

Source - https://tradingeconomics.com/india/gdp-from-
manufacturing

Effect of covid-19 on Manufacturing Industry

The Covid-19 pandemic has impacted economies around the world like no other events in past.
Strong economic powers of the world are reeling under the pressure of the situation in the wake of an
unprecedented demand shock and a shutdown of all key economic activities that drive growth.

Manufacturing Sector is going through a triple hit due to Covid19 outbreak:-

• Direct Supply disruptions hinder production, since the disease is focused on the world’s manufacturing
heartland (East Asia) and spreading fast in the other industrial giants – the US & the Germany.
• Supply chain contagion will amplify the direct supply shocks as manufacturing sectors in less affected
nations find it harder and more expensive to acquire the necessary imported industrial inputs from the
hard-hit nations and subsequently from each other.
• There is Demand disruptions due to
o Microeconomic drop in aggregate demand (i.e. recession)
o Purchase delays by consumers and investment delays by firms.

Prevailing issues & challenges in Covid19 situation

• Supply Chain disruption
o Shutdown of factories
o Bottlenecks in logistics
o Availability crisis of Raw Materials
o Labour shortage
o Insufficient cash flow
• Decline in demand & sales
o Decline in consumer spending
o Reduction in global demand
o Loss of employment
o Consumer sentiments
• Vulnerable Workforce in india

Other Issues for manufacturing sectors in India

• The reluctance of Banks to offer loans
• Biased trade regime towards capital intensive manufacturing
• MSME sectors are facing tough competitions due to cheap imports from China & Taiwan.
• Transportation within country is slow & costly
• Labour productivity in India is less compared to other developed countries.
• Labour Laws in India are extremely complicated and too much labour centric.
• Complicated corporate tax
• Less investment in R&D activities by Indian Government
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What Can be the Way forward

Promote the Growth of Labour-intensive industries

- Wood, Paper and textile industries are labour intensive and mostly do not require any special
qualifications.
- Promoting the growth of these industries as a short-term solution which can ensure the absorption
of growing unskilled workers.
Promote MSMEs
- MSMEs are vital for India’s economic and social development
- In India MSMEs account for 8% of the GDP, 45% of Manufacturing output and 40% of exports.
- The Labour capital ratio is much higher in MSMEs than in larger industries.
- One of the ways to improve the competitiveness among the MSMEs is the cluster approach, which
addresses the general problems of taxation, interest rates, FDI policies and simplified labour laws.
Labour reforms
- Reforming of the existing labour laws must be prioritised to make them simplified and flexible.
- Laws must be reformed in a way that will promote investment and ease of doing business.
Improve education quality and Labour productivity
- The quality of education in schools and colleges must be improved.
- High quality vocational trainings must be provided within the education system.
- India’s labour productivity is lower compared to other developing countries. This should be
addressed to compete in the global market.
Improving Logistics
- The logistics cost is estimated approx. 14-15% of the GDP, almost double of 7-8% of the GDP in
developed countries. Improvement in logistics will directly reduce the cost of the goods and make
Indian products more cost competitive in global market.
Promote research & development
- India is spending about 0.6-0.7% of GDP in R&D activities. This is much less than the US (2.8%),
China (2.1%), South Korea (4.2%)
- The Government should give much emphasis on industrial application-oriented R&D & greater
collaboration with private players.

Manufacturing Sector in India – Government Initiatives

ü Prime Minister of India launched the ‘Make in India’ program to place India on the world map as a
manufacturing hub and give global recognition to the Indian economy. India is expected to become the
fifth largest manufacturing country in the world by end of 2020.
ü The new “Make in India” initiative aims to increase the GDP share of the manufacturing sector to 25%
by 2022. With these new initiatives, the Government also envisions a 100 million new jobs in this sector
by the same year.
ü The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025 and India is expected
to rank amongst the top three growth economies and manufacturing destination of the world by the year
2025
ü The implementation of the Goods and Services Tax (GST) will make India a common market with a
GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for
investors.
ü Indian Government slashes corporate tax to fire up economy in Jan’20, the move puts India’s tax rate at
par with Asian peers and will boost efforts to attract investment.
ü Prime Minister announced a Rs 20 lakh crore package to weather the fallout of coronavirus pandemic is
among the largest economic stimulus package announced by nations around the world. This Atma-
nirbhar Bharat Abhiyan or Self-reliant India Mission is about 10 per cent of India’s GDP
ü Indian Government is promoting the growth of Labour-intensive industries, MSME through a 3.7 lakh
crore stimulus package, Labour Productivity by Skill India initiatives, in-land logistics improvement by
infrastructure development and improve R&D sectors.
ü Firms have now also been permitted to use their 2 per cent CSR spend on incubation, IITs, NITs, and
national laboratories.
 7

Some Additional Discussions: -

• Impact of Manufacturing 4.0 on Economic Growth

With the advent of Industry 4.0, there is a revolution going on in the entire Manufacturing Industry. With
increasing maturity of cutting edge technologies like IoT, Machine Learning, Artificial Intelligence, Big
Data and Robotics, there has been an ongoing wave of digital automation of manufacturing processes
worldwide. This new era of Manufacturing 4.0 has a direct impact on economic growth, both from a
micro as well as macro perspective: -

o While automation leads to higher output with increased efficiency, it is accompanied by a

decline in employment due to increase in automation of production processes and decrease in
manual intervention.

o While increase in efficiency will lead to higher profit, it will be associated with a high initial
investment at the same time.

• Sustainable Manufacturing with Circular Economy

The concept of Sustainable Manufacturing focusses on developing a robust interconnection between
Product, Process and System – the 3 components of manufacturing in order to add sustainable value to
the economic growth. Sustainable Manufacturing can lead to Circular Economy, which involves reusing
wasteful resources in remanufacturing, thereby increasing resource efficiency and optimizing the
economic growth taking into account environmental considerations. Worldwide, manufacturing
companies have already started adopting this form of manufacturing and are contributing directly to
circular economy.

References

1. Manufacturing is Central to the Economy, by Roosevelt Institute, published in Blog on 23rd May 2011
(https://rooseveltinstitute.org/six-reasons-manufacturing-central-economy/)
2. Indian Brand Equity Foundation website
(www.ibef.org)
3. Trading Economics website
(https://tradingeconomics.com/india/gdp-from-manufacturing?continent=america/forecast)
(https://tradingeconomics.com/india/gdp-from-manufacturing)
4. Ministry of Statistics & Program Implementation website
(www.mospi.gov.in)
5. The Indian Express article on Atmanirbhar Bharat Abhiyan, written by Udit Misra , Edited by Explained Desk | New
Delhi | May 14, 2020
(https://indianexpress.com/article/explained/narendra-modi-coronavirus-economic-package-india-self-reliance-
6406939/)
6. PM Modi Yojana website
(https://pmmodiyojana.in/)
7. Economics Times of India
(https://www.economictimes.indiatimes.com)
8. The India Employment report 2017, IMA India
(https://www.ima-india.com/templates/imaindia/report_pdf/The%20India%20Employment%20Report.pdf)
9. IS Jawahir and Ryan Bradley, Technological Elements of Circular Economy and the Principles of 6R-Based
Closed-loop Material Flow in Sustainable Manufacturing, Institute of Sustainable Manufacturing, University of
Kentucky
10. Covid-19 : Indian Perspective by Boston Consulting Group, date 20/03/2020
11. The World Bank Website
(https://data.worldbank.org/indicator/NV.IND.MANF.ZS)
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Reflective Log of Experience of each Team Member

Group Name & Roll

Comments from Project Team Members
No No.
Reflections on development of the Project:-
Brainstorming was done at the beginning of the Assignment by collaborating with
all the team members and identifying the areas to work.

My Role:-
My Role was to research about, how Manufacturing Value Added (MVA)
contribute as a percent of country's GDP. In this research, I found that, MVA is a
widely used indicator used by Researchers and policy makers to understand the
role of manufacturing in a country. In this process, I found how India's MVA have
fluctuated over the years and stand at 14.82 in 2018 compared to 17.1 in 2010.

Key Challenges:-
I come from an Information Technology domain. Manufacturing domain was a
completely new area for me. Hence, the terminologies, process etc. was very
Ajitava Deb different and new to me. I had to put aside the IT way of looking at things and
3
EPGP-12A-006 think through a different perspective.

Learnings:-
Through this Assignment I got a chance to penetrate into a whole new thing. As a
part of research, I found out that how Manufacturing is an integral part of our
Country's GDP and it cannot be overlooked. Though in the current scenario,
India's GDP contribution is mostly from Service industry, however, post COVID-19
with Our Prime Minister emphasizing on 'Atma Nirbhar', I feel, Manufacturing is a
area to be given due importance to scale up India's economy and be self reliant.

What would I do differently the next time:-

Next time, I would like to go more depth on the topic and read some more
research paper and see if there can be any improvement or changes that can be
proposed which can yield better result.

Reflections on development of the Project:-

Trying to communicate between team members with the mean of the project ,
creating the group’s first for ppt work gathering content with knowledge of the
topics . Also finalise the ppt by taking everyone's views and share every draft
version of it.

My Role:-
As per discussion with my team I mainly focused to the contribute the GVA part
and percentage of manufacturing industry partition in GDP calculation .

Anirban Das Key Challenges:-

3 The key challenges I faced that as Manufacturing sector is a service based
EPGP-12A-021
industry I need to understand some process of it as it is a complete out of world
topic from my domain.

Learnings:-
As well as I learn the fundamental formulae of GDP for this manufacturing
perspective for development and growth. Also I nurtured more deep search
option for IIMK digital library content.
What would I do differently the next time:-
Will definitely keep focusing on the source and findings more research papers to
finalising these type of projects.
 9
Reflections on development of the Project:-
Teamwork - is the key for any project and in the first meeting itself we discussed
about the framework for the project, individual responsibility, research
subjects,etc. Regular discussion and status update from everyone helped to get an
overall idea of the status and it helped us for timely completion. I've seen people
from different domain of work, learning & contributing to the project subject and
placing strong points in group calls.

My Role:-
My role in this project - in Planning part, I've contributed to make initial
framework, individual responsibility allocation, regular follow-ups with project
members. My focus part from the project was "the Effect of Coved in
Manufacturing and the way forward". I've compiled all information from everyone
and make initial draft report for the project. I've presented our Presentation in
online platform in front of class on 16/05/20.
Anirban Kar
3
EPGP-12A-022 Key Challenges:-
I'm the only guy in this group who worked over 10 years in core manufacturing.
My challenge is to make the report precise and to the point, as sometimes I
carried way with lots of information & data. Also to connect knowledge from
Manufacturing with Microeconomics was a challenge.

Learnings:-
Learned GDP, GVA, PMI and how Microeconomics defines the positive or negative
growth of a country or whole world. I gained interest on Microeconomics doing
this project. Also when we research anything, we get to learn so many other
things, other than the subject we wanted to research.

What would I do differently the next time:-

Will certainly try to go in depth in further projects, will read more research
papers. Also will try more logical thinking in relating the theory to the practical
condition in analysing and proposing any action plan.

Reflections on development of the Project:-

The entire lifecycle of our project development consisted of excellent teamwork
where all members equally collaborated in R&D activities of various sub-topics,
report content development, regular team discussions and exchange of ideas.

My Role:-
My primary role in this project was to research on how manufacturing sector
contributes to Employment and GDP in Indian context. I was also involved in
gathering information on Manufacturing 4.0, Sustainable Manufacturing &
Circular Economy. In addition to that, I actively helped the team to research &
analyze supporting data from various sources and also consolidate the final report
structure.

Souvik Sengupta Key Challenges:-

3
EPGP-12A-108 Having no work experience in the Manufacturing domain and also learning
Macroeconomics for the first time, it was a challenge to establish the linkage
between the two.
Learnings:-
Not only did I learn the contribution of Manufacturing industry on
macroeconomic factors like GDP, GVA and Employment, but also came to know
about the various government initiatives related to this area. In addition to this,
extensive R&D helped me to understand the various areas of ongoing research in
this domain. On top of everything, peer learning was the best part of this
collaborative project.
What would I do differently the next time:-
Next time, I would try to portray specific industrial Cases in order to better
illustrate the impact of any sector on the economy.
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Reflections on development of the Project:-
The project was strategically subdivided into various sub-areas where each team
member initially worked upon a specific area and periodically collaborated with
each other to exchange ideas, analyze and collate information.

My Role:-
My focus area in this project was around the current government initiatives
related to the Manufacturing sector and how they impact the way forward for the
industry. I also helped the team in analysing PMI trends for Manufacturing sector.

Key Challenges:-
Sumantra Sarathi The key challenge that I faced was identifying which specific aspects of the
3 Haldar manufacturing sector need to be considered while analysing its impact on
EPGP-12A-114 economic growth.
Learnings:-
Being able to relate the theoretical aspects of Macroeconomics with the practical
impacts of an industry was the greatest learning for me. Moreover, this project
provided the opportunity to understand how comprehensive analysis of practical
data can lead to theoretical insights.

What would I do differently the next time:-

In the next project, I would try to try to cover some global aspects as well in
addition to the Indian context in order to understand how the global economy is
impacted by this sector in comparison with the Indian economy.