Net value addition to imports in manufacturing drops: Assocham study

Written by Press Trust of India | New Delhi | Updated: Feb 15 2014, 03:00am hrs
Domestic industriesIncreasing import dependency of domestic industries has come under greater scrutiny. Reuters
The net value addition to imports in 12 key sectors of Indian manufacturing have come down between March 2009 and 2012 due to an unfavourable ecosystem, according to an Assocham study.

The study attributed inadequate domestic production capacities, lack of design capabilities and technology gaps as the primary reasons behind the drop.

"Increasing import dependency of domestic industries has come under greater scrutiny in the wake of present economic slowdown. It has been observed that since March 2009 to March 2012, net value addition has come down from 45.4 per cent to 42.4 per cent," the study paper said.

Among the sampled industries, led by fertilisers and petroleum products, non-electrical machinery, chemicals, automobiles and textiles witnessed a fall in net value additions over the three-year period.

The worst performer has been the fertiliser sector where the net value addition fell by a huge 17.4 per cent while for petroleum products the drop has been to the extent of 5.1 per cent and 3.4 per cent for chemicals.

"The primary responsible factors are inadequate domestic production capacities, lack of design capabilities or technology gaps and raw material availability and their costs. Failure to create an ecosystem for nurturing manufacturing industry is the bigger issue," said Assocham Secretary General D S Rawat.

The paper cautioned that larger the share of imports in the value added content of domestic output, higher would be vulnerability of domestic economy to global uncertainties.

"India's export earnings can finance only two-thirds of its import bill. The failure of exports to catch up with imports consistently is a source of worry for policymakers," the study paper said.

Import intensity of a sector can be defined as the ratio between imported inputs to total output while in the case of a product it refers to the degree of value addition of an imported item.

The study suggested steps like building hardware design and production capabilities, incentivising domestic capacity building, creating a level playing for domestic manufacturing, extraction of more raw materials from domestic sources and encouraging overseas raw material acquisition to lower manufacturing sector's import dependence.