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Manufacturing minus retail

We have widened our trade deficit for this sector by 1,700% in just 10 years ($60 million in 2011and $3.3 million in 2001).

Published: January 20, 2014 2:52:33 am

It is nice to hear the BJP say they will now focus on the manufacturing sector. It is about time someone did so for the biggest failure of the Indian reforms is in this sector.

But as the blow back against foreign investment in multi-brand retail shows, political parties often misunderstand some basic rules. The tirade against retail masks its role as the promoter of several manufacturing sectors that are labour intensive and just what India needs to get the people off the road protesting against everything, into regular jobs.

One of these is the technologically easy non-alcoholic beverages sector. It accounts for nearly 10 per cent of Indian manufacturing and employs more than 4 lakh people directly and indirectly. But just read this number carefully—we have widened our trade deficit for this sector by 1,700 per cent in just ten years ($ 60 million in 2011; $3.3 million in 2001).

A paper by Arpita Mukherjee of Icrier shows there has been no ogre of foreign investment here driving away local producers. It is an agro-processing industry, yet what happened?

Three things have brought us here. Compared to 1990s the productivity of both fruits and vegetables sector has nosedived. In fruits it has halved, in vegetables it has gone down by a third. The mythical SEZ expansion could have hit production but what caused the dip in productivity?

Second, as demand has risen, inflation in these products has jumped making them costly as raw materials, often pricing the domestic products out of markets and third — land policy. The plot size of a food park is often just 50 acres. Any food processing firm of a reasonable size will gobble up that entire space but no state government can afford to let that happen.

There is a related concern though. Most states have no clear water policy. It will be a brave new government which post the general elections will have the nerve to lay down a clear water policy as it could be seen as pandering to corporate interests. Yet in the absence of such support, local companies have sprung up that illegally sell water meant for agriculture to these companies.

It is a manufacturing sector with as we saw, a huge employment potential. China, for instance produces 12 times more of beverages than India does. But solving for these conundrums will mean re-examining the opposition to FDI in multi-brand retail, taking a hard look at our water policy and dusting the cobwebs of the SEZ policy among other things. We aren’t even getting into the business of GST or warehousing investments, here.

Getting manufacturing going for more jobs will however mean addressing all these back-end problems across each sector but as of now there is no evidence that political consensus is building up on them. Not even within Modi-led BJP and certainly far less so in Rahul’s Congress or Kejriwal-led AAP.

Subhomoy is a Deputy Editor based in New Delhi.
subhomoy.bhattacharjee@expressindia.com

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