Editorial Analysis: Construction and manufacturing could be our growth propellants

Boosting India’s Growth

Approx Read Time: 5 min

Boosting India  Growth
Boosting India’s Growth

India needs fast growth to create large number of jobs:

  • India needs to create 90 million non-farm jobs over the next decade.
  • This require an average annual gross domestic product (GDP) growth of 8.0–8.5% over 2023 to 2030.
  • Failure to achieve this growth momentum will mean a decade of missed opportunity.

Construction and Manufacturing sectors will be important to achieve this:

  • In present times, most analysts are focusing on new-age services such as e-commerce and digital communications for the next growth curve.
  • While these sectors need to maintain their growth momentum, high economic growth over the next decade would need the traditional sectors of construction and manufacturing to play a leading role.

Steps to enable construction sector to grow fast:

  • By some estimate, of the 90 million non-farm jobs needed, 24 million could come from construction alone—16 million from real estate and 8 million from infrastructure.
  • To generate its share of employment, the construction sector needs to grow at about 8.5%, nearly double its 4.4% growth rate over financial years 2012-13 to 2018-19.
  • India needs to take some steps to trigger this growth.

Infrastructure – increased spend:

  • India needs to spend about 8% of GDP on infrastructure annually for the next 10 years.
  • Of this, the government share of the spending could be 6% of GDP, an increase compared to 4% of GDP spent in the last few years.

Real estate – building affordable homes:

  • India needs to build 25 million affordable homes over the decade.
  • For this, a set of focused real estate reforms are required.
  • The measures adopted by the country could include generously increasing incentives for home ownership and creating rental stock.
  • Enabling steps at national level:
    • At the central level, substantially raising tax deductions limits on housing loans and rental incomes, as well as introducing tax incentives for investments in rental housing stock could be considered. 
  • Enabling steps at state level:
    • Rationalizing stamp duties and registration fees (like Maharashtra has done).
    • Introducing regulatory amendments in rent-control policies.
    • Launching digitally-enabled, single-window clearances to reduce time delays in affordable housing construction.
    • Bringing the goods and services tax on modern construction methods (like pre-fabrication) in line with in-situ buildings.

Take steps to lower cost of land, especially in large cities:

  • India has a high land-price-to- average-income ratio.
  • For example, the ratio of cost of square-metre of land to per-capita income is about 6.0 in Mumbai and 3.8 in Bengaluru, compared to 0.5 in Bangkok and 0.2 in Beijing.
  • To narrow this gap, India could do two things:
    • India can release 20 to 25% of underused but buildable public-sector land. About 400,000 hectares of land-holding is with defence, railways and port trusts alone.
    • Reform zoning regulations: Indian cities have an average floor space index of 1.0–1.3, much lower than that of comparable cities elsewhere. To change this, India needs to reform zoning regulations in the top 300 cities (by population), accompanied by infrastructure planning.

Huge potential still in manufacturing sector in India:

  • Manufacturing has also been a powerful engine of growth for most high-performing emerging economies.
    • In China, manufacturing GDP grew by 13% annually over 2000 to 2010.
    • In Bangladesh and Vietnam, manufacturing GDP rose by over 10% over 2010 to 2019, while employment was created at a 4–5% rate.
  • Manufacturing in India has potential to generate one-fifth of the incremental annual GDP (about $750 billion) and close to 11 million new non-farm jobs by 2030.
  • Manufacturing in India could capitalize on trends such as shifting global supply chains and the growing use of digital and automation.
    • A set of sub-sectors—electronics and capital goods, chemicals, food processing, pharmaceuticals and medical devices etc.—could generate $500 billion of economic value by 2030. 

Steps to enable construction sector to grow fast:

  • Incentives:
    • To turbocharge manufacturing, India could introduce targeted, time-bound and conditional incentives.
    • One good example of this is the production-linked incentives (PLI) announced in April 2020 for domestic handset manufacturing.
    • This will help to reduce the cost disadvantage that Indian manufacturers face while competing with companies from China and Vietnam, among other countries.
  • Manufacturing clusters:
    • Indian states could establish port-proximate (close to ports) manufacturing clusters that contain free-trade warehousing zones.
    • They could provide land at lower costs, infrastructure, and common utilities, apart from expedited approvals.
  • Reducing factor costs:
    • India also needs to consider reducing its factor costs of power and logistics.
      • Inefficiencies in power distribution and cross-subsidies have made India one of the few countries at its level with higher industrial power tariffs than residential tariffs.
      • India’s logistics costs are also high, at 13–14% of GDP, and its modal mix is skewed towards high-cost road transport.
    • Both these costs could be reduced 20–25% by enabling privatized discom models, reducing cross-subsidy surcharges, and establishing multi-modal freight ecosystems.

Conclusion: Boosting India’s Growth

  • If proper steps are taken to enable the manufacturing and construction sectors, they could be pivotal in driving India’s growth over the next decade.
  • India is at a critical turning point, and cost of inaction at this moment will be high. 
  • It is time for the country to go back to the basics, and bring manufacturing and construction centre stage.

Also Read: Economy: Decoding GDP contraction

Like us on Facebook: UPSC Current Affairs

Learned Something??

Please rate this article..

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

Leave a Reply