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NEW DELHI, Dec 25 (Reuters): India's manufacturing sector is expanding too slowly, Prime Minister Manmohan Singh said yesterday, warning his communist allies that more reform and new labour laws were needed to stimulate job creation.
Singh, who began India's economic reforms as finance minister a decade and a half ago, said manufacturing was critical to moving from a farm-based economy to an advanced, richer one.
"Manufacturing has to be the sponge which absorbs people who need to move out of agriculture in pursuit of higher incomes," he told a business conference in the capital.
"I am concerned that the share of manufacturing in national income has shown only a marginal improvement from 15.8 per cent in 1991 to 17 per cent in 2003."
Singh said manufacturing's contribution to gross domestic product must surge to 25-35 per cent, compared with China's 40 per cent, which would need growth in the sector to jump to 12-14 per cent from about 8 per cent.
That 8 per cent is already strong by global standards and manufacturing exports are growing by 20 per cent a year, the fastest ever. "A substantial manufacturing base is essential to absorb the workforce and ensure sustainable growth of the economy," Singh added.
Analysts warn much faster manufacturing growth is vital for the economy, and for social and political stability, seeing it as the only way to create the extra jobs needed for a workforce growing by 12 million people-more than the entire population of Greece-every year and moving away from farms.
Without it, Indian growth cannot make the jump from the current 8 per cent to the 10 per cent the government wants, they say.
"You can't rely totally on services, you have to move into the manufacturing areas because otherwise there's no way you can absorb the low-skilled labour that comes out of agriculture and which is becoming an issue now," D Joshi, an economist with the CRISIL ratings agency in New Delhi, said.
"It is turning into a political issue also."
Singh's coalition government relies on Communist allies to stay in power, and they are opposed to some economic reforms, including efforts to reform labour legislation to make it easier for companies to fire people.
In a country where globalisation and open markets are bitterly opposed by some, Singh said India must make itself internationally competitive and see reform as an opportunity, not a threat.
"I find that when we talk of integrating markets, many of our business and political leaders only look at the threat of competition from imports and not at the opportunity of accessing new markets through exports," he said.
"If we look at new opportunities, the old threats become less daunting."
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