Production is of two types: manufacturing and non-manufacturing. Manufacturing is what is done by the small- and medium-sized enterprises, the large Indian companies and the multinationals. Examples of non-manufacturing production (outside of agriculture) are handicrafts. In both cases, there is a need for greater access to credit and markets, along with the use of appropriate technologies to improve the means of production.
The non-manufacturing sector in India employs artisans who can make custom handicrafts. Their need for capital and infrastructure is low. They use their hands and knowledge, with a limited set of resources, to create items which can have a demand in urban India and potentially, globally. Today, much of the marketing is done through organisations like the Khadi Village and Industries Commission (KVIC). Much more needs to be done to increase incomes of artisans especially from the point of view of opening up access to global markets, increasing the price realised for the handicrafts, a reduction in the commissions taken by intermediaries in the purchasing network, and the setting up of a proper logistics network to ensure timely delivery of the items to the buyers.
The manufacturing sector has to be one of the big drivers for growth. Over the coming years, this sector needs to absorb the tens of millions of people coming out from rural India. For this, there is a need to increase domestic consumption. This is starting to happen via the spending driven by those engaged in the services sector, especially the knowledge workers catering to the global market. But this number is still very small there are less than a million people employed by Indias software and business process outsourcing organisations.
What the manufacturing sector in India needs to do is get out of the low-quality, low-price mentality catering only on the domestic market and start exporting in large quantities akin to what China has been doing. There are some success stories already in India, and these need to be built on across many sectors. As Indias manufacturing sector grows, it will start employing more people. As their incomes rise, they will therefore be able to start consuming goods. This will create the virtuous cycle the manufacturing sector needs for growth, and what India needs for development.
Over time, as the development process continues, there will be an increase in the population engaged in providing services. This is the progression of development managing the shifting labour force from agriculture to production and manufacturing to services. Given Indias population, there is no way India can leapfrog from an agriculture economy over the production phase straight to services.
So, the road ahead to development needs to cross the following milestones:
Entrepreneurs can both catalyse and capitalise on Indias development process.
Tomorrow: The Opportunities
TECH TALK As India Develops+T