Rather than showing a steady increase over the years, the share of the industrial sector in GDP has stagnated around 20-21% from 1991-92 to 2002-05, and thereafter actually declined to about 18% in 2010-11. The transformation of the agrarian economy directly to the one dominated by services, bypassing manufacturing, has been a matter of concern for policymakers. This has, inter alia, entailed a lop-sided growth with low employment elasticity of manufacturing growth and low value addition per unit of labour and capital. To meet this concern, the government of India has come out with the National Manufacturing Policy (NMP). Unfortunately, this is yet another attempt at a band aid type policy formulation and if one expects that this will provide an impetus to industrial revival to significantly enhance the manufacturing sector?s share in GDP and employment, one may be sorely disappointed.

Of course, the objectives of the NMP are laudable. The policy paper summarises these as: (1) to make the manufacturing sector the engine of the growth process in the economy so that by 2022 the share of industry in GDP increases to 25%; (2) 100 million additional jobs to be created by 2022; (3) imparting skill levels among rural migrant and urban poor; (4) increasing domestic value addition and technological depth in manufacturing; and (5) ensuring environmental sustainability of growth. The objectives are to be achieved by welcoming foreign investments and technologies, reducing the compliance burden by simplifying and rationalising clearances and regulations, enhancing competitiveness, encouraging innovations and ensuring effective mechanism for consultation with stakeholders for mid-course corrections wherever needed. It is not clear how exactly the quantitative parameters in the objectives will be achieved.

A critical component of the strategy for achieving the above is the National Investment and Manufacturing Zones (NIMZs)?the greenfield townships that will be developed to ensure agglomeration economies, state-of-the-art infrastructure, low compliance burden, flexible labour market conditions and availability of skilled labour. Indeed, only a few years ago we were told that special economic zones (SEZ) were necessary to ensure state-of-the-art infrastructure and to reduce the compliance burden of archaic clearance and regulatory requirements. Now we will have NIMZs?larger enclaves with an area of at least 5,000 hectares, which will be developed to promote world-class manufacturing activity. The state governments are supposed to select the location and acquire land if necessary, in addition to government land and land under existing industrial areas, estates or sick public sector units. It is curious why the benefits of rational clearance procedures and world-class infrastructure should be confined only to these enclaves and not to the rest of the country. It appears we can only have layers of scaffolding-type industrialisation because we cannot afford walls!

The development of NIMZs involves the establishment of a special purpose vehicle (SPV) with representations from the stakeholders and will be headed by a CEO who will be a senior central/state government official. The functions of the SPV include pretty much everything from preparation of the master plan and its enforcement, development strategy for the zone, selection of the developer, formulation of rules and procedures for the development, operation and regulation of the zone, promotion of investment, implementation of resettlement and rehabilitation packages, working out an agreement with the state government for revenue streams including user charges to charging fees or rent for use of infrastructure or properties in the zone.

It is acknowledged that a major impediment in labour-intensive industrialisation is the inflexible labour markets. Chapter V-B of the Industrial Disputes Act, 1947, requires prior permission from the government for closure or retrenchment when the establishment has more than 100 workers. This has resulted in a variety of aberrations from disincentives to labour-intensive industries, contractualisation of labour and simply avoidance of the law on one pretext or another. How does the NMP propose to bring about labour market flexibility? It mandates the employers to insure workers against loss of employment in the event the unit closes down or requires to reduce the workforce in the case of persistent losses. According to Section 25 FFF of the Act, there is a mandatory requirement to pay compensation equivalent to 15 days? average pay for every competed year of service and the SPV will monitor this. Alternatively, the SPV can initiate a sinking fund to be funded by contributions as decided by the SPV or a combination of the two mechanisms. The SPV will also facilitate the transfer and disposal of assets of the firms declared sick in an NIMZ. It will help to redeploy labour to others in the NIMZ, if necessary, after retraining them and the compensation to the labour in the interregnum will be charged to the sinking fund/insurance. Thus, while the arrangement makes the exit easier for the units operating within an NIMZ, the cost of the insurance or the sinking fund will have to be borne by the company.

It is difficult to give up old habits and identification of special focus sectors. Ironically, the policy paper includes many sectors for special focus and these include employment-intensive industries and capital-intensive (capital goods) sectors, strategic sectors and industries in which India enjoys comparative advantage! Then, of course, we need to give special focus on medium and small scale industries because, for us, small is always beautiful! Of course, the list is supposed to be amended from time to time. One is left wondering as to what has been left out. This clearly exhibits the old mindset of assigning priorities without clarity.

It was not long ago that we were told SEZs are the panacea for all ills affecting industrialisation. The argument for SEZs was that they will minimise compliance costs of regulations and ensure world-class infrastructure. Now we are told that the NIMZs, which are larger enclaves, are the road to industrial heaven. The critical issue is whether enclave-type development of industrialisation in the country is the only way forward? Should we continue to have one layer of enclave after another? In this world of scaffolding, it seems, we will have to think of industrial castles without having walls.

In this world of ?policy accumulation?, it appears, we cannot get away from sub-optimal policies.

The author is director, NIPFP. These are his personal views