India needs to focus more on manufacturing in order to achieve GDP growth more than 6.5 percent, Reserve Bank of India has said.
The manufacturing sector has the scope for creating jobs for millions of people who leave other sectors such as agriculture, RBI Governor D Subbarao said.
His remarks assume significance in the backdrop of dwindling contribution of manufacturing sector to the GDP. India's economic growth rate slipped to 5.3 percent in the fourth quarter of 2011-12, the lowest in nearly nine years, following poor performance of the manufacturing and farm sectors.
During the quarter ending March 31, growth in the manufacturing sector contracted to 0.3 percent, from 7.3 percent in the corresponding period of 2010-11. "Every unit of manufacturing needs more credit than for every unit of services output to GDP. And we need to be focussing on manufacturing because you cannot accelerate growth from the current level of 6.5 percent, without focus on manufacturing," Subbarao said.
"You cannot provide jobs to hundreds of millions of people who are released by agriculture sector and other sector unless you focus on manufacturing," he added. Talking about the credit demand in future, Subbarao said India as a structurally transforming economy needs more credit as the focus is shifting towards manufacturing.
"Ours is a structurally transforming economy. In a structurally transforming economy, credit-GDP ratio moves up. Second, we are going to shift increasingly from services to the manufacturing sector. And, the manufacturing sector is more credit intensive," he said.
Replying to query from the audience, Subbarao said one of the challenges to Indian banking system is to innovate financial products that are long-term in nature which are suitable for infrastructure sector.
He, however, said long-term lending in the country may not be possible at the moment as mobilising deposits on a long-term basis would be difficult.
According to him, long-term lending in advanced countries is possible due to the participation of pension and insurance funds in lending.