An analysis of labour skills demand in India's growing manufacturing sector

Abstract

The Indian manufacturing sector has enjoyed a compounded annual growth rate of 10% for the last five years. Indian manufactured products are now gaining acceptance in world markets. India already exports about Rs. 1860 billion a year in manufactured goods and this is increasing at the rate of 20% a yeari. Growth in the manufacturing sector has the potential to elevate much of the Indian population above the poverty line by shifting the part of the workforce out of low-wage agriculture. This would initiate a virtuous circle of higher production, incomes, savings and investment, and a more stable and prosperous India will in turn attract more business and higher growth opportunities. The sector provided employment to around 1.6 million people in 2004-05, out of which 6.3 million were in the organized sector and 45.3 million were in the unorganized sector. Over the periods 1999-2000 and 2004-05, the value added per worker in the organized sector increased form Rs.190173 to Rs. 301180. On the other hand, it decreased from Rs.22296 to Rs.21162 for the unorganized sector over the same periodii. This clearly indicates a need for the government to focus on improving the productivity of the unorganized sector. As indicated in Exhibit 1 on the organized manufacturing sector, the number of persons engaged on organized manufacturing decreased between1997-98 and 2004-05. Since 2004-05, there has been a continuous increase in the employment in the organized manufacturing sector, with 2008-09 indicating a significant increase in the number of persons employed. While there has been an increase in the capital employed per unit of labor and the output per unit of labor, a sharper increase has been observed in the rate of growth of labor absorption itself. This is expected to continue with improving demand conditions and confidence as indicated in Exhibit 2 where the revenue growth has reached pre-crisis levels.