Indian manufacturing needs to improve to compete in a globalized market

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Indian manufacturing needs to improve to compete in a globalized market

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Indian manufacturing needs to improve to compete in a globalized market

The Indian manufacturing needs to improve dramatically in terms of productivity and efficiency to compete in a globalized market.

Challenges before the Indian Companies:

  • The challenge before the Indian corporate sector today, in the face of continuing low levels of global growth and rapid changes in technology of production and preferences of the end-consumers, is how to sustain their growth in times of recession that engender protectionist regimes while competing in a fast evolving technological landscape.
  • It is a matter of concern that many Indian companies are finding it progressively harder to adapt to this competitive and restrictive scenario.
  • For many Indian firms, competition per se is a new phenomenon. Indian businesses have traditionally been risk averse.
  • Most Indian firms, barring a few notable examples, lack sufficient grounding and experience in global competition because of the absence of intense inter-firm rivalry in the domestic business environment.
  • Additionally, prolonged government protection has left them feeling complacent and ill-prepared to wage competitive battles at global level.
  • These inherent weaknesses of our corporate are compounded by the slow international growth over the last few years and the so called ‘debt-addiction’ of Indian firms.
  • As signs of the economic slowdown became evident, investment in equity markets stagnated, but corporate India continued to generate debt.
  • Between 2009 and 2014, Indian corporate sector more than doubled its total debt – from Rs. 20 lakh crore to over Rs. 41 lakh crore or roughly $690 billion.
  • A survey of over 18,000 companies in the CMIE Prowess database shows that in the past four years, while aggregate revenues grew by 77%, their debt doubled and interest payout increased by 146%. At the same time, net profits decreased by 32%.

What is needed:

  • A large and populous nation like India needs manufacturing to be a significant part of its Gross Domestic Product (GDP) to ensure higher employment and prosperity.
  • While domestic consumption in our country is on the rise, making quick and deep inroads into overseas markets will help us accelerate growth.
  • Further, for profitable growth, we have to strive for a premium that will accrue only if we target products that need high quality design, engineering and manufacturing.
  • Indian manufacturing, however, needs to improve dramatically in terms of productivity and efficiency to compete in a globalized market.
  • Currently, most Indian companies operate at the bottom of the global value chain by selling components or unbranded products.
  • This is true even of our firms in the Services sector. The test before our companies is to develop business capabilities that equip them to compete at the top of the value chain.

Why innovation required:

  • A report of NitiAayog’s expert’s committee headed by Dr. TarunKhanna, for determining the contours of the Atal Innovation Mission (AIM), notes that “Bringing about innovation has never been as important as today, as the global economy shifts away from the industrial economy towards the innovation economy.”
  • India lag behind many others, including its peers. The Global Innovation Index 2016 ranked us 66th out of 128 countries.
  • Although this is a jump of 15 places over the last year’s rank, India still lags behind China at 25, Russia at 43 and South Africa at 54.
  • Such a dismal show is not surprising given our low levels of investment in Research and Development (R&D).
  • According to the World Bank, in 2014, India’s gross spending on R&D was about 0.63% of its GDP, against 1.5% by China and 1.1% by Brazil.
  • Many developed countries, on the other hand, spend upwards of 4% on their R&D.
  • India was described as a top destination for Foreign Direct Investment (FDI) in R&D, with our R&D market valued at US$ 22.3 billion in 2016.
  • The domestic investment in R&D by Indian private sector, in contrast, remains minuscule as the government still accounts for 77% of all research spending in the country.

Way forward:

  • Heavy investment in R&D and innovation.
  • Cmprehensive efforts to correct imbalances in education, providing the relevant skills to our people not only for the jobs of today but for the jobs of tomorrow, even as we invest more in creating infrastructure and conducive business environment.
  • To work towards inculcating the ‘culture and attitudes’ needed to foster innovation and entrepreneurship.

Anti-Naxal measures

  • The Government has a comprehensive National Policy and Action Plan in place under which a multi-pronged strategy is being implemented to deal with Left Wing Extremism.
  • This strategy is centered around security related measures, developmental interventions and ensuring rights & entitlements of local communities etc.

Security related measures:

  • Security related measures include assistance to LWE affected States by providing CAPF Bns, training assistance and funds for modernization of State Police Forces, arms & equipment, sharing of intelligence etc.

Development related measures:

  • On the development side, apart from flagship schemes of the Central Government in infrastructure, education, health, skill development, agriculture etc several initiatives have been taken specifically for development of Left Wing Extremism Affected areas.
  • These include focused schemes for development of roads, installation of mobile towers, skill development, improving network of banks and post offices, health and education facilities.

Role of states and how they are supported by the central government:

  • States have their own surrender policies for encouraging Left Wing Extremists to join the mainstream.
  • The Central Government also has a comprehensive ‘Surrender-cum-Rehabilitation Scheme of Left Wing Extremists in the affected States’ to allow Left Wing Extremists to return to the mainstream.
  • The rehabilitation package inter-alia, includes an immediate grant of Rs. 2.5 lakhs for higher ranked LWE cadres and Rs.1.5 lakhs for middle/ lower rank LWE cadre surrenderees to be kept in their name as fixed deposit which may be withdrawn after completion of 3 years subject to good behavior.
  • They are also imparted training in a trade/ vocation of their liking and are paid a monthly stipend of Rs. 4000/- for three years.
  • In addition, incentives for surrender of weapons/ ammunition are also provided under the Scheme.
  • The Government of India provides reimbursement of expenditure incurred by the LWE affected States on rehabilitation of surrenderees in this policy under the SRE Scheme.

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