A lack of competitive products and low productivity growth are the two major factors that are hindering the growth of India's manufacturing sector and exports from the country, according to a `Three-year Action Agenda 2017-20' released by NITI Aayog.
The Action Agenda 2017-20 of the NITI Aayog, unveiled by finance minister Arun Jaitley on Thursday, says it is not a lack of demand as such but a lack of demand for Indian products that holds back Indian exports.
''On the demand side, Indian firms often complain that there is inadequate demand for their products. Yet, the world market in merchandise exports at $16.6 trillion in 2015 is extremely large."
Indian companies have not been able to take the benefit of this huge demand, the report said, adding, ''The possible explanation is that Indian products are not competitive in the world economy.''
It is the discipline of the global economy that leads to fast productivity growth in individual economies, it added.
''Indian exporters have to compete with the world's best and must therefore continuously work on upgrading technology, product quality and management to be competitive,'' the report said.
The report pointed out that Indian companies lack scale. In comparison, several Chinese super-competitive companies employ not only tens of thousands of employees but hundreds of thousands. However, there are hardly any companies in India which are employing workers in such numbers.
Putting emphasis on the export sector's potential in the creation of jobs in the country, the three-year vision document said, that exporting companies have to maintain high productivity, which in itself translates to higher wages for their workers.
''Recognising this critical role of exports in the creation of well-paying jobs, India needs a focused strategy for creating an environment in which export competitive firms can emerge, especially in labour intensive sectors,'' it said.
Citing an example, it said more than 90 per cent of apparel workers in India were employed in firms with less than 50 workers in 2005. The corresponding figure in China was less than 15 per cent the same year.
Emphasising on the potential of the export sector in job creation, the report said, "Exporting firms must maintain high productivity, which translates in high wages for their employees."
"Exporters must compete against the best in the world and must therefore constantly upgrade technology, management and product quality to remain competitive," the Action Agenda said.
Elaborating the point further the three year vision document said non-exporting firms either become ancillaries of the exporting firms or must compete against them in the domestic market. In either case, they must achieve high productivity to survive, which allows them to pay competitive wages.
"Recognising this critical role of exports in the creation of well-paying jobs, India needs a focused strategy for creating an environment in which export competitive firms can emerge, especially in labour intensive sectors," the report said.