Now a day we are continuously coming across news & reports about declining share of manufacturing sector in gross domestic product. The contribution of manufacturing sector in GDP has drastically reduced. There is urgent need to increase it from present 15 per cent to over 25 per cent. Do you know- India’s share in global manufacturing is only 1.8 per cent. This is in stark contrast to other Asian nations at similar stages of economic development, particularly China where manufacturing constitutes 34 per cent of GDP and 13.7 per cent of world manufacturing. One major question that come into mind – What’s wrong with manufacturing?
In fact, there is nothing wrong with manufacturing. Rapid productivity growth in manufacturing has lowered the relative price of manufactured goods, but demand has not grown proportionately. An hour of work in manufacturing produces about four times as much today as it did 20 years ago. The boost in real income due to relative price decline of manufactured goods has supported increased demand for services. For example, when price of product like cars reduces, the saving caused due to reduced price will boost the demand for services. It is obvious that if price of car reduces further, I will not buy another one. Instead I spend my saving in getting medical insurance, going on vacations, eating out on the weekends and watching movies which ultimately increase the demand for services. If we need to increase the share of manufacturing in GDP, we have to increase demand by increasing the exports.