Effective action on the ground may ease problems in land acquisition and in getting clearances

About a year and a half ago the Indian government, after extensive and prolonged deliberations, had formulated a National Manufacturing Policy, the cornerstone of which was the setting up of a dozen or so National Manufacturing and Investment Zones (NMIZs). Recently, the Union ministry of commerce and industry notified the fiscal incentives and other facilities that will be available to investors there. Envisaged as industrial townships of over 50 square kilometres with superior physical infrastructure to support manufacturing in at least 30% of the area, these creations are meant to be in the vanguard of the endeavour to raise the share of manufacturing in GDP from 16% to 25%, and create 100 million additional jobs by 2022, i.e. grow manufacturing by 14% a year for the next decade and become almost completely labour-intensive.

Amongst the support-measures promised are exemption from capital gains tax on sale of plant and machinery in a facility being sold for relocation in an NMIZ, up to 20% of the project cost being given as an outright capital grant if the intended activity is otherwise non-viable. The zone developers are also permitted to borrow funds abroad including soft finance from multi-lateral institutions, though without sovereign guarantees. The Union government is also framing an insurance-based job-loss policy to compensate workers being laid off. The chief executives of NMIZs are being empowered with the authority and responsibilities of several governmental agencies including those administering a plethora of labour laws. Though much needed, the authority to accord various time-consuming environmental and pollution approvals, etc, is not envisaged for the moment.

The million-dollar question is whether measures such as these can be a game-changer as was made out when the policy was being conceived three years ago. Though certainly these are steps in the right direction, such single-window clearance arrangements have been tried in the past. Way back in the late 1960s, the same ministry of commerce had promoted large export processing zones at Santa Cruz in Mumbai, Kandla in Gujarat, and Falta in West Bengal. Senior government of India officers were appointed as their development commissioners and given similar authority but the results were a mixed bag. State governments like Maharashtra and Uttar Pradesh had set up similarly empowered institutions to promote industrial activities in specified pockets. The City and Industrial Development Corporation of Maharashtra (CIDCO) was set up to promote New Mumbai as a township-based industrial hub while the New Okhla Industrial Development Authority was created to attract investments in Uttar Pradesh adjacent to the National Capital. A somewhat similar nationwide attempt on the institutional side to ease doing business in India was the setting up of over 500 district industry centres (DICs) with a general manager as its head and several functional managers to assist him. Certainly, the proponents of NMIZs would have reckoned with the experience of all such endeavours and built upon them including the more recent attempt to promote exports and industrialisation through SEZs.

Another pertinent issue in 2009 when the intention to formulate a National Manufacturing Policy was announced was that manufacturing was the star performer in taking the GDP growth to over 9% per year. The decadal growth rate for manufacturing was almost 8% per annum compared to 0.8% in the 11 months of the current fiscal. Manufacture-exports that used to constitute over three-fourths of the country?s total export are now barely one-half. Even in our traditional exports of textiles, apparels and leather goods, we have yielded space in international arena to countries such as Bangladesh, Vietnam and Pakistan. China has become our biggest bugbear not only in consumer and consumer durables but also in the important capital goods segment.

Between 1986 and 2001, we exported more manufactured products than their imports and there was a positive trade balance for 45 key manufacturing sectors. But, in the last decade, we had significant manufactured trade deficits caused by huge imports of industrial machinery, electronics, power and telecommunication equipment, aircraft, and chemicals. An important aspect of it is that despite having the manufacturing capabilities for these items within India, our investors and developers have been preferring to import these primarily on grounds of lower prices and technology versatility. Though 30% of overall domestic demand of capital goods is being met through imports for machine tools, for metallurgical and textile machinery it is as high as 50%.

A primary cause for our not being able to adequately leverage export markets for our manufactures is the low labour productivity. A Boston Consulting Group report called ?People Productivity-Key to Indian Manufacturing Competitiveness? brought out that while the US, Japan, the UK and Germany have an annual labour productivity upwards of $100,000 and China has $67,000, the Indian labour productivity is an abysmal $3,000. This raises an important question of the utility value of having virtual limitless supply of low-cost labour and it increasing by 15 million people a year. The same report makes the observation that India today has one of the least skilled manpower among the top manufacturing nations.

First, only 17% of those entering the workforce are skilled. Second, the quality of skilling remains a big challenge?amongst the skilled workforce, a mere 5% of workers are classified as highly skilled and a staggering 64% are associated with a very low level of skills. Finally, despite a smaller base, improvement in the proportion of skilled workforce in India has been much slower than peer nations. Today, the demand for skilled workers in India far outweighs the available supply and, reportedly, two out of every three employers face difficulty in getting skilled workers. We need to ensure that not 5% but at least 50% of the secondary school leaving students have access to vocational training?the sinew of China?s position of being the world?s manufacturing hub.

If the planned framework of NMIZs is effectively translated into action on the ground, certainly some of the difficulties of acquiring land and obtaining clearances and approvals would get eased. More importantly, we need to work doggedly on improving our manufacturing competitiveness through raising labour productivity. The name of the game today is scaling up production, and while the factories of the past were based on cranking out masses of identical products, the factories of the future will focus on mass customisation. The Third Industrial Revolution through which the world is now passing is based ?on converging a number of technologies; clever software, novel materials, more dexterous robots, new processes and a whole range of web-based services?. Our manufacturing policy has to imbibe all these and much more if we have to get anywhere near the twin objectives of creating significant wealth and en masse employment opportunities.

The author, former secretary, Union ministry of industry and commerce, has extensive state and international level experience in industry