The most important feature of the National Manufacturing Policy (NMP), which recently received the Prime Minister?s go-ahead in principle, is its target for increasing the manufacturing sector?s share from the measly 16% of GDP at present to 25% in 2025. This will help put at rest any talk of India being an exception and achieving its economic transition on the strength of service sector growth alone. Given our demographic characteristics, that is neither feasible nor desirable. The target though is a daunting one, requiring manufacturing growth at 12-14% per annum. This will need focused policy attention and coordination across different layers of the government and its agencies. However, there continues to be widespread scepticism on NMP?s implementation. This can be dispelled if the first milestone of finalising the policy within a month after sorting out the remaining inter-ministerial differences is achieved. This will be closely watched. Let us hope that both the environment and labour ministries will adopt a flexible approach and allow NMP?s finalisation, even if that does not meet the first-best criteria on those counts. The policy review mechanism, to be headed by secretary DIPP, along with the Manufacturing Industry Promotion Board under which state industries ministers will meet twice a year to review progress, will also help ensure implementation. It will be important for the private sector to be actively and centrally involved in the review process if the implementation is to remain on track and industry friendly.

The three principal focus areas of NMP are to reduce the compliance burden, achieve labour flexibility and provide globally benchmarked infrastructure for manufacturing. The organisational modality proposed under the NMP is to establish green-field industrial townships called National Investment and Manufacturing Zones (NIMZ). NIMZs, each of them to be set up as SPVs, will not only be given the necessary land and related clearances but will also be provided with the trunk infrastructure by state governments. The state governments? mandate to establish land banks for the implementation of NMP could be facilitated by identifying the unutilised and under-utilised land currently held by public sector enterprises or locked up in existing industrial estates. State governments could also consider declaring existing industrial estates or even parts of some cities and towns as NIMZs for upgrading existing industrial hubs and giving them the impetus to become globally competitive manufacturing centres. NMP does well to include the provisions for self-certification and third party inspection to reduce the delays and give much needed relief from the unbearable compliance burden. By allowing the head of NIMZs to unify the registration and compliance requirements, the policy will substantially bring down the documentation and reporting requirements for NIMZ units. Finally, labour flexibility will be achieved by the well thought out provision of creating a sinking fund from contributions by units located within the NIMZs or the insurance policies taken specifically for meeting the exigencies of lay-offs when enterprises face seasonal or cyclical downturns in demand. The proposal for some subsidy to ?green technologies? to be encouraged in the NIMZs is worthy of support from the finance ministry as it will help India leapfrog to globally frontline manufacturing technologies. These are all positive features of the NMP, which will hopefully be extended to manufacturing units all over the country once a start has been made in the NIMZs.

The policy explicitly mentions that NIMZs can be set up as PPP ventures where the state government could make the land available for further management by the private sector. The flexibility given in formation of NIMZs is a strong feature of the policy. Another useful innovation could be that, as in China, state governments could contribute the land as their equity share. This will give them a stake in and reasonable control over the NIMZs, the management of which would be in private hands. This innovation could make the NIMZs more viable, help the government achieve early success and may even generate some revenues for state governments. Let?s hope that NMP will receive an early and strong buy-in from the state governments as they will hold the key to its implementation.

NMP, as drafted currently, gives itself a very wide scope and seeks to tackle issues like skills availability, assured supply of raw materials, promotion of medium and small industries, creation of joint ventures, and rejuvenation of public sector enterprises. This expanded agenda could distract NMP from delivering on its essential and critical threefold objectives discussed above. During the ensuing revision, DIPP may do well to identify these additional objectives as desirable ones as distinct from the core and necessary objectives of reducing compliance burden, labour flexibility and globally benchmarked infrastructure, which must be achieved at the earliest.

Finally, it is important that steps for rationalising the compliance and procedural burden and creating a more friendly investment and business environment do not wait for the formal adoption and implementation of the NMP. Secretary DIPP has already taken some significant steps, for example permitting boiler inspection by certified third party inspectors, for rationalising the compliance burden. These steps have to continue regardless of NMP?s progress because India today needs to ensure that investment, which has currently stalled, picks up again and India remains an attractive investment destination. It is clear, though, that NMP, when implemented, will provide a strong and much needed fillip to manufacturing activity and help generate employment opportunities for the 12 million that are being added annually to the country?s labour force.

The author is secretary general, Ficci. These are his personal views