Do it yourself: Manufacturing

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Thursday, October 24, 2024

State of manufacturing, employment and wages

Recently the Ministry of Statistics and Program Implementation, Government of India, released the results of the latest Annual Survey of Industries (ASI) for the reference period FY23. The Annual Survey of Industries is conducted with the primary objective to provide a meaningful insight into the dynamics of change in the composition, growth and structure of various manufacturing industries in terms of output, value added, employment, capital formation and a host of other parameters.

I note the following key points from the survey results.

Key statistics (five-year period from FY19 to FY23)

· Number of total factories in the country has grown at a CAGR of 1.2%, despite the government’s strong emphasis on manufacturing and multiple incentives.

· Total fixed capital (investment) employed in manufacturing has recorded a growth of 4.4% CAGR. Total invested capital has grown at a CAGR of 6.5% during this period, implying higher working capital requirement.

· Total employment in the manufacturing sector has grown at a CAGR of 3.2%. This is sharply lower than the rise in the labor force.

· Total factory output has risen at a CAGR of 11.8%, while output per worker recorded a growth of 4.8% CAGR.

· Average industrial wage has grown at a CAGR of 5.1% against the average CPI inflation of 6.6%, implying sharp deceleration in the real wages.

· The ratio of contract workers to the total workers has increased from 38% (FY19) to 41% (FY23).

· Manufacturing productivity has shown some improvement, but this may be far below the desired levels. Fixed capital to output ratio has improved from 37% to 28%. GVA to fixed capital ratio improved from 44% to 53%. Wage cost to NVA improved from 36% to 34%.

Stark regional imbalances

Five states account for more than 52% of factories in the country. The nature of activities, productivity and employment level of the industry in these states also appear to be different.

· Tamil Nadu accounts for 15.7% factories, deploying 7.9% of the total fixed capital, employs 15% of the total industrial workers and produces only 10.3% of GVA - implying more proportion of labor-intensive small industries.

· Gujarat accounts for 12.2% factories, deploying 19.7% of the total fixed capital, employs 12% of the total industrial workers and produces 14.8% of GVA - implying dominance of heavy capital-intensive industries.

· Amongst the top five industrial states, Uttar Pradesh is the least productive. The most populous state in the country accounts for only 7.5% of total factories, employs 8% of the total industrial worker and contributes just 6% of GVA.

Food business getting more organized

Factories producing food products, 16% of the total number of factories, are now the largest category of industrial units in the country. These factories employ 21,16,000 or 11.4% of the total industrial workers, more than any other industry. The traditional largest employer, textile industry, comes a distant second employing 17,23,000 workers.

Food products industry now contributes 7.1% of the manufacturing GVA, 73% more than the 4.1% contribution of the textile industry.

…but basic metal continues to dominate

Basic metals’ industry employs 17.6% of the total fixed capital, and contributes 11.6% of the GVA. The employment intensity of the Basic metal industry is low as it employs only 7.6% of the industrial workers.

Thursday, February 15, 2024

State of industry in India

Last week, the National Statistical Office (NSO) released the outcome of the latest Annual Survey of Industries (2021-2022). The survey results provide important insights into the current state of the Indian industry. Some key highlights of the survey results are as follows:

· Growth: The year 2021-22 witnessed a sharp rise in level as well as in the growth of the majority of the important economic parameters like invested capital, input, output, GVA, net income, and net profit registered by the sector and even surpassed the pre-pandemic level in absolute value terms.

· The main drivers of this growth in 2021-22 were industries like the Manufacture of Basic metal, Coke & Refined Petroleum Products, Pharmaceutical Products, Motor vehicles, Food Products and Chemical and Chemical products. These industries, taken together, contributed about 56% of the total GVA of the sector and showed GVA growth of 34.4% and output growth of 37.5% in comparison to 2020-21.

· Employment: The estimated number of persons engaged in this sector in 2021-22 has exceeded the pre-pandemic level (that is 2018-19) by more than 9.35 lakh. The top five states employing the highest number of persons in manufacturing were Tamil Nadu, Gujarat, Maharashtra, Uttar Pradesh, and Haryana.

· Wage Growth: Average emoluments also registered an increase with the average salary earned per employee in this sector had gone up by 1.7% in 2020-21 and by 8.3% in 2021-22 in comparison to the respective previous years.

· Regional dispersion: The top five states, taken together, contributed about 53% of the total manufacturing GVA of the country in 2020-21 as well as in 2021-22. Gujarat remained at the top in 2020-21 and in the second position in 2021-22 while Maharashtra ranked first in 2021-22 and second in 2020-21. These two states were followed by Tamil Nadu, Karnataka, and Uttar Pradesh in both years.

· Key produce: Food (16.35%), Non-metal minerals (11.87%), Textile (6.86%), Fabricated Metal (6.44%), Rubber and Plastic products (6.01%) were the top category of operational factories.

· No. of factories: There was a total of 2,00,576 operational factories in India at the end of FY22. About 49400 or about one-fifth of the total factories were inoperational. About 51% of the total operational factories were in the top 5 states – Tamil Nadu (15.76%); Gujarat (11.63%), Maharashtra (10.16%), Uttar Pradesh (7.03%), and Andhra Pradesh (6.24%). Gujarat factories were the most capital-intensive (18.43% of total fixed capital).

·
Debt: Manufacturing units had a total of Rs13971 billion loan outstanding at the end of FY22. The average interest cost of these loans was 11.7%.

Thursday, June 4, 2020

Bits and pieces policy changes may not yield desired results

The government has announced a spate of policy measures to put the economy back on the growth path. The measures and intent to encourage manufacturing in the country is however the most publicized and discussed about policy initiative. It is a clear departure from the extant policy of global cooperation and using bilateral and multilateral trade agreements to benefit from the resources and manufacturing prowess of partner countries ,

So far, we have not seen a comprehensive policy framework for the policy initiative. The basic principle of management would guide that to execute such a major policy intuitive, which may have significant impact on the lives of 140cr people, the planners must first lay down a detailed conceptual framework, which defines in very unambiguous terms, at least the following:

(a) The need for such policy initiative; especially the circumstances that have necessaitated the significant change in the policy direction and intent;

(b) The objectives of the proposed policy initiative, especially specifying how the various stakeholders would specifically benefit fro the change;

(c) The deliverable goals of the policy initiatives, clearly defining the quantitative and qualitative target and timeframe for achieving the specified targets;

(d) Strategy to meet the objectives and goals, clearly defining the legal, regulatory, administrative, procedural, social and behavioral changes that would be prerequisite and/or desirable for achieving the objectives and goals of the policy initiatives; how the government proposes to implement these changes and what could be the hindrances in implementing these changes, etc.

(e) The programs that would be implemented for achieving the objectives & goals; the budget for these programs, executing and controlling authorities and review mechanism;

(f) The cost and benefit analysis of the proposed policy shift; specifically outlining the exit conditions and costs should the changes are found to be not working as planned.

The incumbent government had initially proposed the policy change to promote local manufacturing under its "Make in India" initiative in 2014. In six years, the government has not presented any comprehensive conceptual framework for it; though the NITI Aayog has issued some broad vision documents. There have been many scattered efforts to encourage investment in manufacturing sector, ) most prominent being the restructuring of corporate tax rates), and cluster development; we have not seen any a coordinated effort that would be usually needed for such a massive policy paradigm shift. To the contrary there have been many disparate actions by different organs of the government, defeating the very purpose of the policy itself.

The recently issued draft directive to ban production, transport sale and import of 27 popular agro chemicals is just one point in case. Significant capacities for these chemicals have been built in past few years only. The totally arbitrary decision to suddenly put a blanket ban on these products does not augur well for the policy intent of the government. Similarly, recently a circular was issued to ban sale of 1026 products which are imported in Semi Knocked Unit (SKU) condition in the police and para military canteens. The circular was withdrawn in couple of days. Apparently, two departments of the same ministry were not talking to each other on important policy issue.

Various organs of the government are giving different explanation of the policy intent itself. "make in India"; "Make for India", Make in India for the World", Self Reliance"; "India as a hub of Global Supply Chain" are some of the popular connotations. This does not show that we are going to have a paradigm shift in policy; may be just few bits and pieces here and there.