CREATING A MANUFACTURING DRIVEN ECOSYSTEM TO ACCELERATE ECONOMIC GROWTH

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Abhinav Kumar, the founder of MVikas is a fervid believer of the fact, ‘The moment one conceives  an idea, no matter how onerous the path maybe, once you set into action and put in diligent  efforts, there is nothing that can restrict your way to success.’ Being a Chartered Accountant by  profession, he never failed to prove his merit while practicing with the numerous firms he was  associated with. 

The country has huge untapped potential to become a global manufacturing hub, but economic  growth has been primarily driven by the services sector growth for decades. In contrast, growth in  manufacturing has been abysmal despite the availability of cheap labour and other resources. While the rapid growth of the services sector has served the nation well right from the 1990s, the  pandemic has shown why the nation needs to shift its focus on boosting the crucial manufacturing  sector.

Industrialization is viewed as the most important engine of economic growth. The special  characteristics attributed to the manufacturing sector can be interpreted in many ways: rapid  technological changes, economies of scale, and easy integration into global production networks.  Additionally, a number of investigators have confirmed that

transformation from agriculture to  manufacturing, and further from manufacturing to services is the process of economic  development. The reason for the strong relationship between industrialisation and economic  development is that the manufacturing sector is the driver of productivity growth. This, in turn, is  the lifeblood of technological development. Therefore, it was once generally accepted that “since  the industrial revolution, no country has become a major economy without becoming an industrial  power. 

This is whence the manufacturing sector has played a stellar role in growth and development of  any industrialised country. The emerging and developing countries place manufacturing at the  driver‟s seat in their journey of economic growth. It has been the backbone of all developed and  developing nations. It is where the research starts, where new technologies are born, where  scientists and engineers and others are challenged to develop new and better processes, products  and technologies. 

The manufacturing sector is the main source of technology-driven productivity growth in modern  economies. It is not much of an exaggeration to say that manufacturing is what has made the  modern world. Thanks to the fact that the manufacturing activities lend themselves much more  easily to mechanisation and chemical processing than do other types of economic activities, the  manufacturing sector has been the main source of productivity growth throughout history. 

In order to accelerate economic growth, it is essential to create a manufacturing driven ecosystem.  An ecosystem is formed when different entities come together in meaningful ways to solve shared  challenges and meet shared objectives. Effective ecosystems enable a cumulative “network” effect for participants and create value greater than the sum of parts, driving higher performance and  creating exponential results. 

The manufacturing sector has been the „learning centre‟ of capitalism in technological terms. Owing  to its ability to produce productive inputs, what happens in the manufacturing sector has been  extremely important in the productivity growth of other sectors. The increases in agricultural  productivity that we have seen in the last century and half would not have been remotely possible  without the developments of manufacturing industries producing agricultural machinery, chemical  fertilizers, pesticides, and increasingly genetic engineering.  

The rapid increase in the productivity of services like logistics and retail in the last couple of  decades were also made possible by manufacturing industries producing more efficient transport  equipment, computers, and mechanised warehouses.

The manufacturing sector has also been the source of organisational innovation. Productivity  growth in the last two centuries has been driven not just by technological changes but also  organizational changes, most of which originated in the manufacturing sector.  

The manufacturing sector, producing physical and non-perishable products, has higher tradability  than agriculture and, especially, services. At the root of the low tradability of services lies the fact  that many services require their providers and consumers to be in the same location. 

It is very significant to remember that productivity growth in other sectors of the economy is a result of innovation in the manufacturing sector. The world‟s most productive farms are heavy  users of chemicals, fertilizers, pesticides, and agricultural machinery. And the world‟s most  productive service firms rely on top computer technology, transport equipment and, in some  instances, mechanized warehouses.

The importance of the manufacturing sector for a country‟s overall infrastructure for innovation  cannot be highlighted enough. Even in advanced countries, where manufacturing production is  supposed to be on the decline, the bulk of innovation happens in the manufacturing sector. Every  economic activity stimulates another economic activity. So, just as manufacturing stimulates the  provision of services, services stimulate manufacturing production. But evidence shows that  manufacturing has a stronger “multiplier effect” than services. Economies of scale are more easily  achieved in the manufacturing sector than in the service sector. This is because manufacturing  activities lend themselves more easily to mechanisation and chemical processing.

An increase in manufacturing sector growth rate will positively affect the growth rate of the  services sector, in both the short-run and long-run meanings. Nevertheless, the development of  the manufacturing sector promotes the incentives of savings, as well as accelerates the pace of  technological accumulation. Compared with other sectors, the manufacturing industry has a higher  demand for capital and investment, thus providing special opportunities for both capital and  technological accumulation. It is the manufacturing sector that enhances the utilization of domestic  human capital and institutions. So, while it is true that some services are increasingly  contributing to economy-wide productivity growth, these services cannot thrive without a  vibrant manufacturing sector. Governments in high-income countries shouldn‟t let their  factories rot away, and governments in developing countries are wrong to think that they  can skip the industrialisation phase.

Manufacturing sector also plays a significant role as an employment generator. Among all sectors,  manufacturing distributes wealth most equitably among the work-force; hence is a key factor to  pull people above the poverty line. 

In the nutshell, manufacturing industries help in modernizing agriculture; which forms the  backbone of our economy. Apart from this, they also reduce the heavy dependence of people on  agricultural income. This becomes possible because of creation of new jobs in secondary and  tertiary sectors. Development in the industrial sector also helps in eradication of unemployment  and poverty. Export of manufactured goods expand trade and commerce and brings in much  needed foreign exchange. It would be highly incorrect to say that a country with high level of  manufacturing activities becomes always attain prosperity.