Manufacturing share in India's GVA down to 15.1% in FY20: Exim Bank study

Recent performance of the sector points to underlying inertia, which has translated into greater dependence on imports to meet growing domestic demand

The share of manufacturing in India’s gross value added declined to 15.1 per cent in 2019-20, from 18.4 per cent in 2010-11 despite the strong and growing private consumption demand in the country, a study published by the Export-Import Bank of India (India Exim Bank).

In a webinar on Tuesday, the bank pointed out that recent performance of the manufacturing sector in India is indicative of an underlying inertia, and this weakness has translated into greater dependence on imports to meet the growing domestic demand over the years. India's imports fell by 8 per cent in 2019-20. As a result, the $152.9-billion trade deficit in FY20 was much lower than $176.4 billion in the previous year.

The latest study titled ‘Self-Reliant India: Approach and Strategic Sectors to Focus’, has identified select sectors for import substitution and enhancing domestic production. These include electronics, defence equipment, machinery, chemicals and allied sectors, pharmaceuticals, and certain agricultural products. 

Interestingly, the study has also included sectors such as autocomponents, and iron and steel in which, though India maintains an  overall trade surplus, it faces significant trade deficits in crucial sub-categories, particularly with China. It has also included rare earth elements in the scope, as securing these strategic minerals is important for India to enter high-tech manufacturing. These sectors account for more than $186 billion of imports by India, with a share of nearly 39 per cent in overall imports and 50 per cent in the non-oil imports by India.

To boost self-reliance in the manufacturing of these items, Exim Bank has suggested several strategies including specific interventions for encouraging innovation-led manufacturing, addressing deficiencies in tax and duty structures, encouraging joint ventures, revisiting government regulations and programmes, among others. It has also highlighted certain cross-cutting strategies which can incentivise indigenisation across the entire manufacturing sector.

"For instance, in sectors like agriculture and rare earth, there is a greater need for strategies that enable collaborative arrangements and encourage outward investments into partner countries for meeting domestic requirements, while in technology-intensive sectors the strategies are focused on creating domestic capacities for reducing import dependence," the study said.

"With the current international attention on India’s tremendous potential for economic growth, international trade and global value chain participation, it would be an opportune time to push for rapid progress on structural reforms to increase domestic capabilities, said David Rasquinha, Managing Director, India Exim Bank.