Manufacturing push: Incentivise auto MNCs, forge more free trade agreements, says govt panel

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August 27, 2021 4:15 AM

Similarly, for bolstering farm and processed food exports, the country needs to re-negotiate imports tariffs and firm up trade pacts with the EU, the US and the UAE. Rigorous brand-building exercise must be undertaken to promote Indian products.

The panel’s suggestions for the priority sectors aim to double manufacturing exports over the next five years, reduce imports by two-thirds and drive up annual domestic consumption growth to about 9% from roughly 7% in a normal year.The panel’s suggestions for the priority sectors aim to double manufacturing exports over the next five years, reduce imports by two-thirds and drive up annual domestic consumption growth to about 9% from roughly 7% in a normal year.

India needs to incentivise multinational corporations in sectors like auto components to set up mother plants here, scrap import duties on principal raw materials for furniture and toys, fix anomalies in existing free trade agreements (FTAs) and forge new ones with key economies to boost exports of manufactured products, a government-backed panel has suggested.

The Steering Committee for Advancing Local Value-Add and Exports (SCALE) – headed by former Mahindra & Mahindra managing director Pawan Goenka — has recommended that the government incentivise multinational original equipment manufacturers (OEMs) to use India as a sourcing base for auto parts.

The panel, set up under the ministry of commerce and industry, has firmed up specific suggestions for boosting exports of manufactured products in 24 priority sectors. These include auto components, textiles, marine products, farm and processed food items, certain electric vehicles, toys and furniture.

While global trade in auto components stood at $1.3 trillion in 2019 (before the pandemic), India’s share was just $15 billion, the panel said, flagging the untapped potential. It has set an export target of $30 billion for the auto parts industry by FY26.

The country should revisit the South Asian Free Trade Agreement (SAFTA) to better suit current realities and “explore favourable trade agreements” with Canada, the US, the EU and Mexico to brighten export prospects, it added. It acknowledged the crucial role of the proposed Rs 57,042-crore production-linked incentive scheme for the auto parts sector. At the same time, it also wants the government to develop dedicated export hubs, incentivise spending on research & development and promote investment in auto electronics and semiconductor.

To boost exports of furniture, in which India’s share in the $240-billion global trade was less than 1% in 2019, the panel has suggested that at least 3-4 integrated hubs be developed near ports. MNCs should then be lured into investing in the hubs through incentives. Appropriate policy interventions, such as duty-free imports of key inputs and a favourable timber policy, need to be initiated.

In textiles, the panel wants India to revisit both SAFTA and the Asean FTA and have sectoral trade pacts with Canada, the UK & the EU. India must focus on downstream value addition, diversify into man-made fibre products in a big way and facilitate mega clusters to address cost competitiveness. It has set an ambitious export target of $80 billion for textiles and garments in the next five years from about $37 billion (in 2019).

Similarly, for bolstering farm and processed food exports, the country needs to re-negotiate imports tariffs and firm up trade pacts with the EU, the US and the UAE. Rigorous brand-building exercise must be undertaken to promote Indian products.

In the leather and footwear segment, India’s costs are about 20% higher than that in China, Vietnam and Indonesia, which needs to be removed, according to the panel. It has pitched for setting up export-oriented integrated plug-and-play clusters for footwear with common infrastructure facilities to enable even small players to operate with minimal costs.

The country should create port-based processing parks for value addition in marine products and develop cold chain infrastructure at harbours as well as airport at Kochi, Vizag and Chennai. It has set a marine export target of $14 billion by FY25 and $28 billion by FY30 from about $6 billion in FY20.

The panel’s suggestions for the priority sectors aim to double manufacturing exports over the next five years, reduce imports by two-thirds and drive up annual domestic consumption growth to about 9% from roughly 7% in a normal year.

SCALE has estimated that focus on these three critical factors would catalyse incremental domestic value addition of $350-380 billion over the next five years.

The panel was tasked with identifying steps to improve the growth of manufacturing, the share of which in the GDP has remained stagnant at around 16% for decades now.

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