Growth of the manufacturing sector as a prime driver of industry and economy is an empirically established fact. The government has set up a manufacturing competitiveness council to monitor the progress of this sector. It has announced setting up of National Manufacturing and Investment Zones (NMIZ), of which the Delhi-Mumbai Industrial Corridor (DMIC) with establishment of six comprehensive industrial centres at six states is under progress. A special purpose vehicle has been formed to channelise funds (government fund and grant from Japan) and implement the project.
This, along with commencement of dedicated freight corridor on the Delhi Mumbai stretch, is one of the big ongoing mega projects which can change the industrial face of India in the coming years.
However, the abysmal growth rate in manufacturing in the current months has proved beyond doubt that DMIC alone cannot take the sector out of the woods.
Two other factors are also responsible. One is the declining trend of investment in the sector and the other pertains to the dismal implementation of some policies which are otherwise laudable. It is seen that gross domestic capital formation in manufacturing as a % of total investment has come down from 34.1% in 2004-05 to 27.9% in 2011-12.
As investment has a lagged impact on output in capital-intensive sectors, the resultant adverse impact on the machinery and equipment segment, electrical machinery, motor vehicles and other transport equi-pment and furniture manufacturing segments is obvious. Currently, all these segments, with the exception of electrical machinery, are suffering output losses ranging between 6-16%. The deceleration in output growth in these segments has begun from 2010-11 onwards. Broadly the decline in output growth in capital goods and consumer durable sectors has started from FY12, and in the first eight months it has experienced negative growth of 0.2% and 11.2% respectively.
The sharp drop in output of these segments accounting for around 16% of industrial output has in turn severely shrunk the market size of steel. The lack of demand has also capped the price growth of these manufactured items to an average of 2.5-3.5% only in November 2013, against an overall price growth of 7.5% and hike in food price inflation of 20%. Indirectly, the high inflation in food prices has also restricted flow of household funds for purchase of white goods.
The widely acclaimed policy of encouraging micro, small and medium enterprises through innovative and attractive schemes has some positive impact on soft segments of manufacturing like food processing, textiles, leather, chemicals etc. with lesser impact on processing, engineering and fabrication segments. If successful, the latter segments could have acted like a springboard for their big brothers with their low cost, innovative product range.
The policy of creation of industrial clusters by encouraging the setting up of common facility centres for which government grant is available is proving to be a slow starter due to non convergence of petty interests of the concerned district industry department, stakeholders and MSME directorate. It is the responsibility of state governments to resolve the conflict and take forward the implementation of the policy for the benefit of manufacturing growth.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal