**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.