Towards a Competitive Manufacturing Sector

Introduction
The Indian economy grew at an impressive growth rate of over 8.5 per cent during 2004-05 to 2006-07, primarily on the back of robust growth in the manufacturing and services sector. The manufacturing sector has witnessed remarkable growth rates of over 9 per cent during the last three years reaching up to as high as 12.3 per cent during 2006-07. This is significantly higher than the average annual growth of 5.7 per cent during the previous five years. A sustained double digit growth of the manufacturing sector is essential for achieving the desired GDP growth of 8 to 9 per cent and more importantly to generate the much needed employment.
In this context, the objective of this study is to analyze the growth potential and competitiveness of the Indian manufacturing sector. Section 2 of the paper evaluates the performance of the manufacturing sector over time and makes a cross country comparison. In Section 3, we identify the factors that have contributed to marked divergence in regional development of this sector. Section 4 looks at both the organized and unorganized sectors and examines the factors that have resulted in the marked dualism between these two sectors. Section 5 analyzes the employment generation potential of the manufacturing sector, while Section 6 looks at its export performance. Section 7 identifies the challenges facing Indian manufacturing sector to make the transition to mass manufacturing, and discusses possible means to address these challenges or constraints. Finally, Section 8 summarizes the main conclusions of the paper.