One silver lining amidst the all-pervasive uncertain environment has been the zeal and urge shown by the government to come out with the much awaited Manufacturing Policy.
As the Business report for 2012 by World Bank is just out, one is tempted to compare a few of the direct parameters of starting a business in India and in what manner the new policy would be able to make a dent on these areas.
The policy has relied quite heavily on the implementation of National Investment and Manufacturing Zone, housing a cluster of industries whose common problems of infrastructure facilities, logistics, warehousing and marketing would be taken care of by forming a SPV that would also provide long term funds to meet the requirements of the units. Ideally speaking, there is no reason that with the successful implementation of this policy, India should be able to make a marked improvement from the current laggard status in project execution (ranked 132 among 183 countries, against China: 91 and S.Korea: 8).
The right to exit from a non-viable unit with consequent employment security for the displaced persons should take care of a major irritant for enhancing investment in manufacturing sector.
It is easily appreciated that growth in manufacturing from the current share of 15% in GDP to 25% by the terminal year of 12th Plan by raising the annual growth rate in the sector from the current 6-7% to 12-14% would result in a big push to demand for steel and the urge to consume value added and sophisticated grades of steel to justify the fresh investment in steel capacity in the country.
One of the biggest contributions of the growth of manufacturing relates to the wide spread development of small and medium enterprises catering to the high end niche demand and thereby enhancing the role of engineering exports which currently has a share of only 1.4% in global exports against 14.8% by China, 6.8% by Japan and 4.1% by South Korea.
Exports of manufacture also contribute to growth of indirect export of steel which remains the primary input in many engineering exports.
Also growth of manufacturing exports may lead to higher imports of steel in the face of non availability from indigenous sources or availability at a higher cost.
Capacity enhancement in steel must therefore be cost competitive and must take care of the anticipated growth of manufacturing exports.
It has been estimated that in the past decade, for one per cent growth in manufacturing, steel consumption grows by 0.92 %.
The steel intensity in manufacturing is set to enhance substantially on successful launching of the NIMZ policy to contribute to increased demand for steel. This would also provide a litmus test for project execution in the country.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal