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Manufacturing Sector Performance Turns Abysmal; Output, Wages Dip Sharply

Dipping investments, increased input costs, and higher import duties have caused demand for manufactured goods to fall

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Once called ‘Achilles Heel’ by P Chidambaram, the manufacturing sector in India isn’t doing well on any index and is living up to the analogy. After the slump in the index of industrial output, due to the poor performance of manufacturing sector, the wage given in the sector has also dipped to a new low.

According to Monster India’s latest report, manufacturing is found out to be the lowest paid sector in India in the fiscal year 2016-17.

Sanjay Modi, Managing Director, Asia-Pacific region, and the Middle East, said, “Manufacturing sector is the backbone of a mature economy as it fuels growth, productivity, employment and strengthens agriculture and service sectors. In India, the manufacturing output contributes about 16 per cent to the overall gross domestic product (GDP) and employs nearly 12 to 13 per cent of the labour force.”

Another report released this month (July 2017) showed that the sector’s output eased to a four-month low in June. This dip severely impacted Industrial output growth which slumped to 1.7 per cent in May from 8 per cent a year-ago. The figures haven’t progressed much since then. Primarily, dipping investments, increased input costs, and higher import duties have caused demand for manufactured goods to fall.

“Despite being significant for the Indian economy, the sector remains amongst lowest paid. Additionally, there is an ambitious target of increasing the GDP contribution of manufacturing sector to 25 per cent of by 2025. In a bid to achieve this, there has been a slew of initiatives such as ease of doing business, relaxed FDI investments rules, and infrastructural developments. However, there is a wide gap between opportunities and the potential that is yet to be realized,” added Modi.

In spite of the incumbent government’s efforts to boost the sector, sales of manufactured goods fell 3.7 per cent during 2015-16 marking the first decline in seven years. This sharp dip in sales has also led widespread layoffs in many firms. Engineering major Larsen & Toubro laid off some 14,000 employees in September 2016 while Nokia shut its factory in Chennai, rendering 6,600 full-time workers jobless.

The economy isn’t shrinking, but its pace of growth is not picking up either. The policy makers must take note of the slow pace of growth, and the relatively poor performance of manufacturing sector of the economy.