Critically examine the key problems of India's manufacturing sector while keeping in focus the recently released ease of doing business report.

Published: September 6, 2017

As per recent Ease Of Doing Business report by NITI Aayog and the IDFC Institute(based on an enterprise survey carried out in 2016) enterprises in the manufacturing sector have a growth problem. Numbers-wise small companies dominate the sector. However such small firms suffer from low productivity, because of poor economies of scale. Also due to lack of finance facilities and other issues their technology is also obsolete. Therefore most of these firms are labor intensive. Though small firms provide employment opportunity, the jobs they create are low-paying ones.
As per report among Young enterprises(set up 10 years ago or less), the largest share of young enterprises is in other non-metallic mineral products (15%), food (12%), and textiles (10%). These sectors are all labor-intensive sectors, which can provide employment opportunity to growing labor force. However, the peculiar feature of these sectors is that in these sectors share of small enterprises is the largest. Around 75 % of all young enterprises can be classified as small. So though new enterprises in the manufacturing sector create employment opportunities however they are low-paying, low-productivity jobs.
Physical infrastructure such as power sector, the transport sector is another bottleneck. The report highlighted the need to improve infrastructure. Along with infrastructure, access to finance is another problem in front of Indian manufacturing sector. The rigidity of labor laws also poses a challenge to the growth of manufacturing sector. Smaller firms tend to cap their workforce below the point to remain outside the ambit of labor laws, such firms employ workers in an informal capacity. Regional concentration of most of the young enterprises in Maharashtra, Gujarat, Tamil Nadu, Andhra Pradesh and Telangana is another matter of concern. Such trends may aggravate the existing inequalities.
Improving infrastructure, introducing flexibility in labor regulations, increased awareness of the steps being undertaken by the government to the improve ease of doing business and providing the skill to labor force should be the top priority to provide a boost to the manufacturing sector.

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