The new high-powered committee set up by the Prime Minister to look into the manufacturing sector?s deceleration and elevate it to a higher plane of sustainable growth, with a special focus on boosting exports from labour-intensive sectors and leveraging FDI to modernise production systems, has a difficult task to grapple with. Most of the solutions on the menu, like labour regulation flexibility, are not acceptable to the government?s political allies on the Left. The scenario has become all the more complicated with the appreciating rupee weighing heavily on overseas demand for such locally-made products as textiles and apparel. Domestic trends show that growth has been hit by a steady deceleration in the consumer goods segment over the first two quarters of the year. This is especially so in consumer durables, where the numbers show that output has actually fallen. Though the festive season bounce in sales may have helped avert the malaise spreading to other sectors, a sustained pick up in consumer demand would depend on both gains in income and how fast the economy can return to a low interest rate regime, now that the inflation scare of 2007 is behind us. Yet, the macroeconomic picture is far from clear. With monetary policy being increasingly guided by global forces, the influence of policymakers over related economic conditions is on the decline.
So, efforts to ensure reduced costs and better prices in both domestic and external markets would have to lay emphasis on improving productivity. As pointed out in a recent World Bank report on technology diffusion, the potential is vast. Just extending the use of technology used by top-notch enterprises to their less productive counterparts would push up GDP 4.8 times. The problem is that though these technological capabilities exist within the domestic economy, broad adoption has been slow. Infrastructure constraints share a large part of the blame for this. So the committee would have to prioritise a slew of measures that would hasten the diffusion of technologies to the country?s smallest production units. Some forward movement on labour reform would help, too. The liberalisation of the use of contract labour in some states could be slowly extended and improved upon, incrementally, until a wider consensus comes to bear influence.
