Industrialising India

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: Last year, Indian manufacturing grew by over 12% and by almost 14% in the last quarter of fiscal 2006-07.

This is a rate which the approach to the Eleventh Plan had envisaged touching by the terminal year rather than at its beginning. The year gone by saw transport equipment and its component industries, basic chemicals and chemical products, machinery and electrical equipment continuing to record high double-digit growth rates. We seem to be on our way to becoming a global auto hub, with Volkswagen, BMW, DaimlerChrysler, Suzuki, Honda and Toyota, besides Ford, GM and Hyundai deciding to expand their Indian operations. The rapid growth of the pharma industry is as much due to the expansion of the domestic market as the increased overseas acceptability of Indian drugs.

Manufacturing growth, as indeed the overall industrial growth, is spreading out and becoming spatially more even. The continuation of the package of fiscal incentives in Uttrakhand and Himachal Pradesh has brought about more industrialisation of north India. Increasing wage costs, particularly of skilled personnel, and the real estate boom in south and west India, have contributed to the industrial spread.

But will the good times last? One can only hazard a calculated reply. In the next 2-3 years, the present momentum is likely to be maintained, though not necessarily at rates as high as 14%. The buoyancy in demand for Indian manufactures should remain high despite the sharp appreciation of the rupee, which is beginning to affect the export prospects of products such as textiles, apparel, footwear and leather goods. FDI inflows are likely to remain substantial, which augurs well for manufacturing.

On the negative side, there is the possibility of domestic investment in manufacturing suffering a resource crunch with the monetary tightening. SMEs, which depend primarily upon local institutions, are most vulnerable. On a 5-6-year horizon, the issues of skill availability, inadequacy of electricity and high transaction costs are likely to come to the fore. Also, the cyclical nature of the world economy, which has already seen four years of boom, can be reasonably expected to have its effect on Indian exports in 3-4 years.