The manufacturing sector was one of the growth drivers of the Indian economy in the halcyon high-growth years before the global economic crisis. It appeared to have picked up again once recovery set in globally, but in recent months, its languid performance has again become a matter of concern. Certain policy actions have now become imperative, to be instituted before the momentum is lost. The announcement of a national manufacturing policy is one of these. This is a short-term solution to a long-term problem.

The Indian manufacturing sector grew at a compound annual average of over 7% in 2000-08, characterised by innovative Indian companies and high-performing entrepreneurs. However, the sector contributes a low 15% of GDP as compared to comparator nations such as Thailand, China and Malaysia where manufacturing comprises 30-40% of GDP.

The government of India (ministry of commerce and industry) set out a discussion paper on a draft national manufacturing policy in April 2010. Viewing India?s manufacturing sector in the context of a dynamic global manufacturing scenario as well as the imperative of creating employment, the paper proposed National Manufacturing and Investment Zones (NMIZ). The objective of the policy would be to promote investments in the manufacturing sector, to increase the share of manufacturing in GDP to 25% by 2022, to double the employment in the sector and to enhance its global competitiveness. All laudable objectives.

The highlights of the NMIZ-based manufacturing policy include world-class physical infrastructure, a progressive exit policy, incentives for investments in a strategic manner, especially for selected rapid-growth industries, business friendly approval and regulatory measures, and support to clean and green technologies. For the last several decades, industry has been crying itself hoarse for these to be in place to make India a competitive manufacturing location. It appears the government is finally coming around to the realisation that a country-wide provision of the above would be quite impossible and therefore, there should be demarcated areas where industry could have access to world class facilities and fewer disabilities that are associated with the sector in India. At least this is a beginning. Hopefully, over a period of time, there would be no requirements of such demarcations and the country as a whole would have access to such an ecosystem to foster manufacturing.

CII believes that employment creation should be the central objective of the manufacturing policy. Only 8% of India?s workforce is currently employed in the organised sector and more than 450 million workers enjoy no recourse to social security. A large proportion continues to be employed in agriculture, including in the form of disguised unemployment. The manufacturing policy would hopefully unlock the vast potential of India?s workers, helping them raise their productivity and incomes, enabling their movement out of poverty, supplying the requisite skills, and integrating them into global supply chains.

A key feature of the proposed draft would be flexibility in labour rules along with social security schemes for labour protection. Thus, the policy is essential for the prosperity of the nation and the well-being of its people. Another key stated aim of the draft policy under discussion is to promote clean and green manufacturing. In the coming years, the necessity of sustainable development and mitigation of carbon emissions will create an entirely new industry sector leveraging green technologies. India has the opportunity to emerge as a global leader in the production of green goods and by evolving innovative manufacturing models to reduce the carbon footprint. The policy recommends special incentives for adopting green technologies in the form of low interest loans, funds for research, renewable energy use, etc.

The proposed zones would combine production facilities for domestic and export markets, public utilities, logistics, environmental protection mechanisms, residential areas and administrative services. Common facilities such as testing and certification labs, training and skilling centres, and marketing assistance would be part of the policy, thereby creating a complete ecosystem for manufacturing. As per the proposed model, the zones would be created and managed through special purpose vehicles that would include central and state governments along with investor consortiums. Significantly, the draft policy does not require legislation and can be implemented immediately, with a few essential notifications. For example, its provisions can be made easily applicable to existing investment areas such as the Delhi-Mumbai Industrial Corridor. Such special zones are to be found in most countries that have rapidly advanced their manufacturing sectors.

Not based on tax breaks, the draft policy aims to deal with obstacles in a concerted and strategic manner. It also facilitates the creation of new cities and townships in a sustainable, planned and environmentally friendly manner. Urbanisation is an integral facet of the economic growth model as the productivity of workers, and thereby their incomes, are two to three times higher in cities than in rural areas. India has lagged in this, but is expected to experience a wave of urbanisation as growth continues. The draft policy would hopefully promote this inevitable process through strategic interventions.

India also needs to create depth in its manufacturing sector, which means high value addition. This is necessary in the context of globalisation, so that it is less vulnerable to global shocks and can capture a greater share of the value chain. Government policy can accelerate depth creation through easier clearance and approval processes, preferential access to finance, capability building for start-ups and small enterprises, developing and promoting clusters, and building supporting infrastructure. In a dynamic global environment, emerging economies have become the new factories of the world. However, India currently has disabilities on amenities such as power and transport infrastructure, cost of funds, ease of doing business and taxation issues, in addition to high transaction costs. These render Indian goods uncompetitive in global markets and sometimes within the country when compared to imports. The new manufacturing policy should address these bottlenecks to growth and would accelerate the production of Indian goods for domestic and export markets while helping create new livelihood opportunities. In fact, it is quite possible that the price and value conscious Indian consumer would define the benchmarks for the manufactured products of tomorrow. Let our policy make this dream possible.

The author is director general, CII