Covid has India scrambling to boost mfg

For decades, the services industry powered India's growth and tempered unemployment in the world's second-most populous nation. The pandemic is now leading to calls for an urgent rebalancing of the economy towards manufacturing.

High-contact services jobs from airlines to hotels and malls to multiplexes were the first to collapse amid protracted lockdowns aimed at containing the virus. The decline of the sector, which typically accounts for 55 per cent of the economy, is forcing people to seek work on rural farms or in the undersized manufacturing industry.

Ramesh Jakhar, 55, is among those hit. He used to drive a bus for a school in New Delhi, where he earned Rs 16,000 a month. Now he tends buffaloes and sells milk after returning to his village near the capital.

Unlike China, which saw workers move en masse from farms to factories, India transitioned into a services economy--with the sector providing more than 32 per cent of overall employment as of 2020, up from 17 per cent in 1981. At the same time, the share of agriculture in dropped to 42 per from 72 per cent.

"India has leapfrogged from agriculture to services, and missed on manufacturing

jobs cent so far," said Sonal Varma, an economist at Nomura Holdings Inc in Singapore. "This is a gap we should fix."

Boosting labour force productivity is the key to faster economic growth for India, which is recovering from an unprecedented contraction brought on by the pandemic. Data due on August 31 will likely show GDP grew 21 per cent in the April to June quarter from a year ago, setting the stage for an expected 9.5 per cent full-year expansion.

But India has repeatedly failed to grow its manufacturing base despite demand from a captive market of more than 1.3 billion people. It has instead relied on imports for everything from heavy machinery to toys. Even Prime Minister Narendra Modi's 'Make in India' initiative to boost manufacturing to 25 per cent of the economy has floundered in the absence of supporting infrastructure and ease of doing business.

Manufacturing has shrunk to about 13 per cent of GDP from a peak of almost 18 per cent in 1995, says the World Bank.

"There is a need to rebalance via targeted policy within the sectors," said Arpita Mukherjee, professor at Icrier.