Why manufacturing is critical to bring more women into formal workforce

Some argue that this misrepresents the true situation. A large share of women engaged in economic activity aren’t counted in the labour force participation. But that just reinforces the point that many women are unable to escape low-productivity, informal work, Capital Economics said.

Unlocking potential

Prime Minister Narendra Modi’s administration has been pushing local manufacturing since 2014, first with the its Make in India initiative, duties on imports and subsequently with the Production-Linked Incentive (PLI) scheme for manufacturing in over a dozen sectors.

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Under the PLI scheme, India has been offering incentives on annual incremental sales to boost local manufacturing in a host of sectors ranging from automobiles, to white goods, pharmaceuticals and solar photovoltaic modules. The programme is part of New Delhi’s broader goal to help reduce imports and boost exports of manufactured products, in an attempt to secure a foothold in the global supply chain that is undergoing a shift from China following the COVID-19 pandemic.

Ceteris paribus or all else remaining unchanged, if the manufacturing share of employment were to rise by 10 percentage points, India’s economy would be 10 percent larger, Shilan Shah estimates.

Additionally, a 10-percentage-point rise in female labour force participation would raise output by a further 15 percent.

“It isn’t wildly ambitious to believe that shifts on this scale could happen over the next 20 years. If they did, annual GDP growth could be around 1 percentage point faster per year than if there were no shift at all,” Shah said.

The key areas that need attention to boost manufacturing include easing the business environment, labour market rigidities, problems with acquisitions and improving poor infrastructure.

New Delhi and states have worked on improving the ease of doing business and the Centre has also been focused on spending more on infrastructure, while asking the private sector to follow suit with its own capital expenditure.

The implementation of the structural reforms needed to boost manufacturing has been stop-start at best, ebbing and flowing depending on the political climate.

Still, there are other potentially powerful forces at play that could mean that, even with only gradual reform progress, India could develop into a manufacturing hub.

“In a fracturing global economy that coalesces into two blocs centred on China and the US, we’ve argued that India would most likely lean towards the latter. And India is one of the candidates that stands to benefit from the “friend-shoring” of supply chains, given its large labour supply and (relatively) low costs.”

Also read: Apple faces obstacles in move to boost India manufacturing

Apple shifting more of its manufacturing into India from China could prove pivotal in that regard, if it helps to form an ecosystem of suppliers or encourages other multinational corporations (MNCs) to follow suit.

It could lay the foundations for the development of a competitive local manufacturing sector, Shah said.