Presentation on Manufacturing Competitiveness based on the piece published in Financial Express on December 9, 2012.

1. Manufacturing Competitiveness of Indian States
Amit Kapoor & Anshul Pachouri
Institute for Competitiveness, India is an independent, international initiative centred in India, dedicated to enlarging and disseminating the body of research and
knowledge on competition and strategy, pioneered over the last 25 years by Professor M.E. Porter of the Institute for Strategy and Competitiveness, Harvard Business
School (ISC, HBS), USA. Institute for Competitiveness, India works in affiliation with ISC, HBS, USA to offer academic & executive courses, conduct indigenous research
and provide advisory services to corporate and Government within the country. The institute studies competition and its implications for company strategy; the
competitiveness of nations, regions & cities; suggests and provides solutions for social problems. Institute for Competitiveness, India brings out India City
Competitiveness Report, India State Competitiveness Report, India Economic Quarterly, Journal of Competitiveness and funds academic research in the area of strategy &
competitiveness. To know more about the institute write to us at info@competitiveness.in.

2. What is Competitiveness
Prosperity
Productivity Competitiveness
Innovative Capacity
© Institute for Competitiveness, India

3. Defining Competitiveness
• Competitiveness is determined by the productivity (value per unit of input) with which a nation or region
uses its human, capital and natural resources. Productivity sets a nation’s or region’s standard of living
(wages, returns on capital, returns on natural resources)
– Productivity depends both on the value of products and services as well as the efficiency with which
they are produced
– It is not what industries a nation or region competes in that matters for prosperity, but how firms
compete in those industries
– Productivity in a nation or region is a reflection of what both domestic firms choose to do in that
location. The location of ownership is secondary for national prosperity
– The productivity of local industries is fundamental to competitiveness, just not that of traded
industries
• Nations and regions compete in offering the most productive environment for business
• The public and private sectors should play different but interrelated roles in creating a productive
economy
© Institute for Competitiveness, India & Michael. E. Porter

4. Indicators and Enablers of Manufacturing
Competitiveness
Productivity
Presence
of Gross Value Investment Technology Innovation
Suppliers Output per Added per in the Sophisticati & Patents
and firm Worker sector on
Related
Clusters
Competitive Business Environment
© Institute for Competitiveness, India & Michael E. Porter

5. Levels of Influence on the Business
Environment: Manufacturing
Context for
Firm Strategy
and Rivalry
National
Cheap Imports from other economies,
Incentives for manufacturing
Factor Regional Demand
Conditions State tax policy Conditions
National
Availability of skilled labor
Force, land, power, technological National
advancement Related and Growing Population. Rising Income
Regional Supporting Levels
Local public education system; Regional
Vocational Training
Industries Price competitiveness, Distribution
Regional
Suppliers; Clusters and Logistics
Partners
© Institute for Competitiveness, India & Michael E. Porter

6. Manufacturing Sector in India
• Manufacturing sector is the backbone of Indian economy which has the potential
of creating millions of job opportunities and helping in poverty reduction in the
country.
• Its importance can be realized by the fact that manufacturing sector employs
around 9% of the total workforce estimated around 36 million workforce
combining organized and unorganized sector.
• For the past 20 years, the share of India’s manufacturing in World’s manufacturing
has increased by just 1% and is 1.3% in 2010.
• The manufacturing sector of the country is suffering from low labour productivity,
shortage of skilled manpower, unsophisticated technology, high taxes,
unsupportive policies & cheap imports from other economies.
© Institute for Competitiveness, India

7. Contribution of Manufacturing in GDP
% Contribution of Manufacturing in GDP
17.0
16.4
16.5 16.2 16.1
16.0
16.0 15.8 15.9 15.8
15.8
15.5 15.2 15.3 15.3
15.2 15.1
15.1 15.0
14.9
15.0 14.8 14.8
14.4 14.5
14.5
14.1
14.0
13.5
13.0
12.5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
• It is interesting to note that the percentage contribution of manufacturing in GDP has remained nearly constant to 15-
16% for the past twenty years.
• This shows that the potential contribution of manufacturing in GDP is yet to achieve.
© Institute for Competitiveness, India & RBI

8. % Contribution in GDP – Sector-wise
% Contribution in GDP-India(1991) % Contribution in GDP-India (2010)
19.8 14.6
31.4 20.2
Agriculture Agriculture
14.9
Services Services
15.9
Manufacturing Manufacturing
Industry Industry
65.2
48.8
© Institute for Competitiveness, India & RBI

9. World Manufacturing
% Contribution in World Manufacturing (1991) % Share in World Manufacturing (2010)
Latin America & Latin America &
Caribbean 5.8 Caribbean
6.3
European Union European Union
23.1 24.3
India 20.9 India
China China
33.0
2.9 1.8
0.8 13.7
United States United States
• The contribution of Europe in World Manufacturing has decreased from 33% in 1991 to 20.9% in 2010. This significant
decline has come at the cost of rising China whose contribution in World manufacturing has reached 13.7% in 2010from
merely 2.9% in 1991.
• India on the other hand is just able to increase its share by merely 1% in the past 20 years and was 1.8% in 2010.
© Institute for Competitiveness, India & World Bank Database

10. World Manufacturing
7000
6000
5000
Latin America & Caribbien
4000 EU
India
3000
China
2000 US
World
1000
0
• Per capita Manufacturing GDP of China had increased by 8 times from 1991 and reached 806 US$ in 2010 while India
had just reached 112 US$ in 2010.
• China may be succeed to capture the world manufacturing but still its per capita manufacturing GDP is still far behind
US which is 6147 US$ in 2010
© Institute for Competitiveness, India & World Bank Database

11. Manufacturing in India : Situation
2000000
1800000 TN
1600000
MH
1400000
Total Persons Engaged
1200000 GJ
AN
1000000
800000 KA UP
HR
600000 WB PB
KE RJ
400000
UK MP
OR
CH
JH
AS DL
200000 HP
GO BH
JK
TR
ME
NA
MN
0
0 5000 10000 15000 20000 25000 30000
Total Number of Factories
© Institute for Competitiveness, India, Data Source: ASI

12. Gross Output at Factory Level
12 BH
10 Size of the Bubble denotes the Gross
Gross Output/ Fixed Capital ( Per Factory)
DL
Output ( Per Factory)
8 GO
KE JK
NA
UK
6 MN HR
PB AS WB MP
MH
HP
ME
UP KA GJ CH
TNAN
RJ
4 JH
OR
TR
2
0
-500 0 500 1000 1500 2000 2500 3000 3500
-2
Fixed Capital ( Per Factory)
• The two states Maharashtra and Gujarat together forms the 34% of the total Gross output in the manufacturing sector
of the country which makes them manufacturing giants of India.
• In states like Bihar, the firms are found to be very efficient in using their capital and are producing more than 10 times
the gross output on their fixed investments.
© Institute for Competitiveness, India, Data Source: ASI

13. Total Output - Input
1.8
UK
1.6 ME
TR HP
JK JHOR
NA CH
1.4 MN GO RJ KA MH
MP AN
Totao Output/ Total Input
DL PB HR UP TN GJ
BHAS KE WB
1.2
1
0.8
0.6
0.4
0.2
0
0 50000 100000 150000 200000 250000 300000 350000 400000 450000 500000
Total Inputs ( Rs in Crore)
• The manufacturing sector of Uttarakhand is best able to use its inputs in an efficient manner and has Outputs/Input
ratio of 1.6.
• The lowest Output-Input Ratio is found is Bihar which is 1.17 and needs to be addressed.
© Institute for Competitiveness, India, Data Source: ASI

14. State-wise Manufacturing Growth
30.0 GO
GJ JH
% Contribution of Manufacturing in GDP
25.0
TN CH
20.0 KA
MH HR
PB OR
15.0 UK UP
RJ
HP AN
MP AS
WB
10.0
DL KE JK
BH
5.0 SK TR
AP NA
0.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0
CAGR Manufacturing (2006-10)
• In states like Goa, Gujarat and Jharkhand, manufacturing contributes to nearly 27% of the total GDP which makes it
extremely important for these states to focus on developing policies to foster the development of this sector.
• It is interesting to note that manufacturing sector in Odisha and Chhattisgarh had grown by more than 16% against the
overall India’s manufacturing growth rate 9.3% for the past five years and driving the future growth of these states.
© Institute for Competitiveness, India, Data Source: ASI

15. Manufacturing: Areas of Concern
• Manufacturing in India today requires urgent attention of the policymakers to
address the challenges both at the macro and micro level.
• There is need to reduce the tax burden especially on the MSME sector to improve
their profitability.
• More support to enhance the skills of the workers and technology up-gradation is
needed from the government. India itself is a very big market due to high demand
of manufactured products.
• The cost of production has reached extremely high levels with the rising land cost
in India which needs to be checked.
• The high power costs, lower efficiency and declining availability of quality labor are
affecting competitiveness of the Indian manufacturing sector.
• Indian manufacturing players needs to pitch on the quality of the product in the
western markets rather than focusing too much on the price competition from
China.
© Institute for Competitiveness, India

16. Policy Imperatives
• The government should adopt the cluster based development strategy to maintain
the high growth in the manufacturing sector.
• The government needs to develop strategic policy framework to identify and
develop innovative clusters which have the great potential in exports and can
generate more employment.
• There is need to develop investment mechanism to foster public private
partnerships to invest in the sick clusters and focus on improving their productivity.
• State specific approach towards enhancing the manufacturing competitiveness
needs to be adopted.
• The clusters which are not export oriented needs to be analyzed that where they
can fit in the global value chain of manufacturing.
• The manufacturing clusters in India need more marketing and brand building
assistance to improve their export competitiveness in comparison to other
competitors like China.
© Institute for Competitiveness, India

17. Manufacturing Competitiveness Strategy
for States
Each state is at the different stage of development in the manufacturing industry and therefore different strategies need to
be adopted to improve the manufacturing competitiveness.
Strong Manufacturing States – Innovation Driven Strategy
These states need to move towards more technological advancement to improve their efficiency in
production. These states should invest in developing advanced skill-sets for manufacturing and become
more export competitive.
Weaker Manufacturing States- Clusters Development Strategy
These states should adopt the cluster based approach focusing on the MSME sector. They need to give
more incentives to the industry in terms of tax, power costs and logistics and try to facilitate more private
investments in the sector.
Medium Manufacturing States- Factors Driven Strategy
These states need to focus in lowering down the costs of inputs of production, develop right set of skills
and talent and remove barriers in doing business. The states should initiate public private partnership
mechanism to attract investments and improve productivity.
© Institute for Competitiveness, India

18. Categorization of States
Strong Manufacturing States
Gujarat, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Goa, Haryana, Jharkhand
Medium Manufacturing States
Chhattisgarh, Himachal Pradesh, Madhya Pradesh, Odisha, Punjab, Rajasthan, Uttar Pradesh,
Uttarakhand
Weaker Manufacturing States
Tripura, Sikkim, Nagaland, Kerala, Jammu and Kashmir, Delhi, Bihar, Assam, West-Bengal
© Institute for Competitiveness, India

19. © Institute for Competitiveness, India