India?s new manufacturing policy has suggested introducing labour market flexiblity and balancing it with job loss insurance funded by employers, setting up of a Manufacturing Industry Promotion Board (MIPB) and a careful evaluation of free trade agreements for their impact on domestic industry.
The centrepiece of the policy, the National Investment and Manufacturing Zones conceived as giant industrial green field townships, will offer capital gains tax breaks for units that re-invest the income from disposal of their assets in the zone.
Though the Policy comes at a time when Indian industry is battling land acquisition issues, it has no significant suggestions to offer except to set up land banks.
The report adopted by the Prime Minister-led committee expects India to scale up the value add from the manufacturing sector to 25% of the GDP in another fifteen years. It is currently at about 16%, the lowest among the Bric economies.
The report also makes out a case for less rules for industry to comply with, at the same time raising the stakes for them to go green. It has suggested a 20% price preference in government procurement for green products.
But the report offers few clear suggestions on how to implement the policy. Anis Chakrabarty, Director at Deloitte Haskins and Sells said more than policies, industry needs implementation hassles at the ground level to be sorted out.
The plan expands the special economic zone concept to a larger geographical area but limits the tax breaks to only those which are approved as SEZs.
The National Manufacturing Policy has been a pet project of the UPA governments to give a leverage to the domestic industrialists to expand in the country. The plan was part of the prescription of the V Krishnamurthy led panel that wrote out a national strategy on manufacturing in 2008.
To work out the recommendations of the Policy the UPA government has time till 2014 to bring in the suitable legislations including those on labour issues. But the government facing several probes on corruption related to favours shown to the corporate sector, may find it difficult to frame laws that offer more sops to the employers.
The MIPB is envisaged as a parallel body to the Foreign Investment Promotion Board. But instead of doling out licenses it will work between industry and states to work around specific problems, keeping in mind the specific needs of state governments.
The body will be chaired by the commerce minister. Among other things it will organise state industry ministers’ conference which will meet on half-yearly basis to develop state industry policies.
On foreign trade policies, it says the free trade agreements and economic pacts undertaken with other countries should not harm domestic manufacturing.
The policy targets creating a 100 million new jobs by 2025, encourage foreign investment and technologies which ?will reduce compliance burden on the industry through a rationalisation of business regulations.? The policy also champions a “comprehensive exit policy? that it says will promote productivity.
At the same time it has emphasised on protection of workers’ right even while ensuring the new labour management norms. The ?unwritten rules? the policy suggests are consultative practices between employers and the employees. ?The stress will be on modification in employment laws and in shop floor practices?, it says. Besides, it further underlines encouraging access by Indian companies to foreign know-how and develop indigenous technology through fiscal incentives and subsidies. It supports preferential purchases by government agencies of indigenously developed products and technologies. A suitable policy framework would be formulated for Public Sector Undertakings (PSUs), especially those in the ?defence and energy sectors, to make them competitive while ensuring functional autonomy.?
Department of Industrial Policy and Promotion, in consultation with National Manufacturing Competitiveness Council (NMCC) and Planning Commission had earlier prepared the draft policy which was open to public suggestions and comments.
Other objectives of the policy include developing of skill sets among rural migrant and urban poor to give them employment in the zones. This will be financed by the special purpose vehicle that will run the zone.
It underlines mission mode projects which would be conceptualised in sectors like ?aerospace, shipping, IT hardware and electronics, defence equipment and solar energy to build national capabilities?. The policy would also create an environment for a healthy rate of growth for the country’s micro, small and medium enterprises.