In the list of priorities ahead of the new government, the manufacturing sector must be placed in the top ranks. Although the sector has expanded by an average annual rate of over 8% for the last ten years, it saw near-stagnant growth in FY13 and is expected to stand in negative territory for FY14. The benefits of a strong manufacturing sector to the overall economy are many?it can create the huge number of new jobs required by India in the coming years, help keep inflation under check, build India?s export presence, and drive economic growth as a whole.
Recognising this, the government brought out the National Manufacturing Policy in 2011 targeting 12-14% growth rate and the creation of 100 million new jobs by 2022. Under this, National Investment and Manufacturing Zones (NIMZ) are expected to come up, offering world-class infrastructure, rapid port connectivity, and state-of-the-art supporting systems. Twelve NIMZ have been approved; however, it will be another five years before they are operational.
It is heartening to note that the manifestos of major political parties accord high importance to the sector, stressing areas such as competitiveness, simplifying procedures, and export facilitation. The new government can deploy a range of policy instruments to revive manufacturing growth.
To tackle subdued demand, projects that are already in process but stalled due to various reasons can be fast-tracked. This would spark production in related sectors such as steel and machinery. The Project Monitoring Group is already working on several hundred large projects; there is a need to lower the threshold investment limit to R500 crore and also to create similar bodies at the state government level.
The World Bank?s Doing Business indicators place India at a low rank of 134 in terms of overall procedural facilitation and much lower for areas such as starting a business, contract enforcement and taxation. India should aim at addressing each of these issues systematically to move up the ranking rapidly.
The creation of employment in the manufacturing sector will require a close look at Indian labour laws which have not kept pace with rapid globalisation, competitiveness and market dynamics. Mass manufacturing enterprises, which have been growth drivers in other emerging economies, are largely missing in Indian industry, partly due to labour regulations. There are as many as 44 Central labour laws, over 150 state labour laws, and innumerable standing orders, often with divergent definitions of terms such as ?wages? and ?worker?. Rationalisation and consolidation of existing laws is inevitable but likely to be a protracted process. In the meantime, areas on which there is convergence of views can be addressed through executive orders.
CII has suggested the unique concept of mass manufacturing enterprises, or enterprises that employ more than a certain number of workers. Such enterprises could be offered incentives in terms of easier finance, graded tax structures, flexibility in labour laws, and others. They would also need to ensure a higher order of social security and facilities to workers. Just as a separate policy framework has been put in place for micro, small and medium enterprises and incentives are provided on the basis of capital investment, a promotional policy set could encourage more manufacturing enterprises on the basis of employment.
A further avenue of growth for manufacturing is to tap overseas markets. Unfortunately, the share of manufacturing goods in India?s export profile has been steadily trending down over the years. In a global environment of shifting manufacturing geographies, India has the opportunity to emerge as the new manufacturing hub of the world, given its competitive wages and cost structure. Much more can be done to promote Indian goods overseas by expanding in new markets and boosting manufacturing of top globally traded items as also leveraging trade agreements.
At the same time, we can also strategise to build manufacturing capability in goods which are currently imported such as defence items, ICTE hardware, and machinery and equipment. This may require correcting inverted duty structures or examining free trade agreements for impact on domestic manufacturing.
Attracting overseas funds would be a necessary corollary to building manufacturing capacity at home. It is important to restore investor sentiments by facilitating FDI in sectors such as multi-brand retail and defence.
The manufacturing sector?s competitiveness also hinges greatly on innovation, quality and standards, and R&D. India?s attainments in these areas are still low, but could be scaled up rapidly with forceful policies for incentivising investments in knowledge expansion. Globally, new manufacturing trends such as 3-D printing, design, robotics and new technologies are transforming the traditional assembly-line model. India, too, must prepare for the future by moving up the value chain.
Finally, individual sectors would need to be promoted with vision and foresight, including strategic sectors, labour-intensive sectors, and sectors with high export potential. National-level policies and laws like the Mining and Minerals Development and Regulation Bill, National Steel Policy, National Chemical Policy, etc, should receive attention from the next government.
India enjoys key attributes in terms of natural resources, large workforce, and huge domestic markets as well as proximity to vibrant global markets. The next government would have to hit the ground racing when it comes to the manufacturing sector.
The author is director general, CII.
Views are personal