Subject: Economy

The shift from labour-intensive to capital-intensive exports in India's manufacturing sector highlights a significant deviation from the country's comparative advantage in labour abundance. This transition is evident from India's export basket transformation from textiles and garments to engineering goods and chemicals between 1994-2022, with 628 new export products being added.

Reasons for Failure of Labour-Intensive Manufacturing Exports

Structural Challenges:

• Low Labour Productivity: A 2.80% year-on-year decline in labour productivity in 2022 has affected competitiveness in labour-intensive sectors.
• Skill Mismatch: Nine out of 27 industries showed declining labour productivity in FY 2023, with eight in manufacturing sector indicating skill gaps.
• Capital Bias: FDI equity inflow in manufacturing increased by 69% reaching US$165.1 billion (2014-2024), showing preference for capital-intensive sectors.

Policy and Regulatory Issues:

• Complex Labour Laws: Multiple labour regulations increase compliance costs for labour-intensive industries.
• Limited Export Incentives: Inadequate support compared to competitors like Indonesia's 2025 stimulus plan for labour-intensive industries.
• Infrastructure Bottlenecks: High logistics costs affecting price competitiveness of labour-intensive exports.

Measures to Promote Labour-Intensive Exports

Policy Reforms:

• Implementation of Production Linked Incentive (PLI) schemes specifically for labour-intensive sectors.
• Streamlining labour laws through the four Labour Codes to reduce compliance burden.
• Creating Special Economic Zones (SEZs) focused on labour-intensive manufacturing.

Financial Support:

• Providing subsidized credit facilities similar to Indonesia's Rp20 trillion credit support model.
• Offering tax holidays and incentives for labour-intensive sectors like textiles, garments, and leather.
• Establishing dedicated export promotion councils for labour-intensive industries.

Skill Development:

• Strengthening Skill India Mission to enhance labour productivity in manufacturing.
• Promoting industry-academia partnerships for job-oriented skill development.
• Supporting on-the-job training programs through tax incentives.

The transformation towards labour-intensive exports requires a coordinated approach involving Make in India 2.0 and National Manufacturing Policy, focusing on sectors with high employment potential like textiles, leather, and food processing to leverage India's demographic dividend effectively.