Overcoming challenges of indigenisation to boost manufacturing sector

By: |
August 19, 2020 4:17 AM

The recent announcement by the Ministry of Defence to indigenise production of 101 items and thereby substitute imports is very laudable.

The ability to supply these goods in the international market would increase the total requirement of the special grades steel (alloy/SS and carbon) and incentivise local steel producers to manufacture these grades.The ability to supply these goods in the international market would increase the total requirement of the special grades steel (alloy/SS and carbon) and incentivise local steel producers to manufacture these grades.

The monthly Index of Industrial Production (IIP) report for June states that growth of the industrial segments in the recent months, in the grip of pandemic, need not be compared with those before the outbreak as the production of all units has suffered due to the prolonged lockdown, disappearance of market demand, diversion of government funds towards health, medical relief with not much of investible resources left after meeting the unprecedented level of social protection needed for millions of our countrymen. Government revenue took a severe beating with declining collection of GST, other taxes, and levies. Among the industry sectors, the FMCGs, the two-wheelers and tractors are exhibiting increasing sales, which indicate a rise in rural demand with agricultural income getting a boost from the government’s recent farmer-friendly announcements and rise in food prices.

On the other hand, thrusts on Atmanirbhar Bharat, Vocal for Local and Make in India programmes provide a signal that the government is keen to pull up manufacturing from the labyrinth of poor productivity, lacklustre growth and little contribution to employment and income generation. The Indian manufacturing sector, to recall a historical perspective, lost its prominence after the third Five-Year Plan, when it was felt that industrial orientation, specifically the policies helping the heavy industry, need to be changed towards the primary sector to resolve the recurring food problems in the country.

Subsequently, India experienced spectacular growth in the services sector, the IT and ITES, and received global recognition with record receipt of foreign exchange through exports of knowledge and skill in software technology. The manufacturing sector all along played a second fiddle, but was recognised by the government to enhance its share in the GDP from 16-17% to 25% by 2022, which remained a dream in the last few years till the recent thrust of enhancing the finished goods production capability to cater to domestic and global demands while discouraging export of raw materials by converting them into finished goods. This came as a major plank of the manufacturing policy. Undoubtedly, this is what is presently required to take Indian manufacturing sector to a glorious journey ahead.

Some of the recent announcements indicate the government’s desire to handhold the manufacturing sector. India imports annually around 6-7 million tonne of engineering goods that contain a good number of special alloys, SS grades and high-grade carbon steel. If these steel grades can be made available indigenously, the vendors manufacturing these goods would be encouraged to set up facilities in India and can participate in the Global Value Chain (GVC). The ability to supply these goods in the international market would increase the total requirement of the special grades steel (alloy/SS and carbon) and incentivise local steel producers to manufacture these grades. It is essential to draw up a clear policy that would require an inter-departmental team manned by domain experts, policy planners and industry representatives to implement this policy in right earnest within a time schedule. Many localised efforts are already on. However, the import substitution of such a massive scale urgently needs cohesive policy guidelines, covering a number of industries in various segments under manufacturing like food processing, textile, printing, chemical products, fabricated metals, electrical equipment, vehicle and other transport manufacturing, machinery and equipment etc.

The recent announcement by the Ministry of Defence to indigenise production of 101 items and thereby substitute imports is very laudable. It would create business opportunities worth of Rs 4 lakh crore in the next five-seven years. The major items like artillery guns, assault rifles, light combat helicopters, armoured vehicles for the army, submarines for the navy, light combat aircraft and others for the air force would face an import embargo. Around 69 different items would have no imports beyond December 2020, 11 items beyond December 2021, four items beyond December 2022, eight items beyond December 2023, eight items beyond Dec ember 2024 and one item beyond December 2025. In addition, the Defence Acquisition Council has decided to acquire 106 basic Trainer Aircraft from HAL worth of Rs 8722 crore as a step for higher indigenisation of defence imports. BEML, GRSE are developing new facilities to serve the defence infrastructure.

It is needless to add that Indian manufacturing sector is predominated by MSME sector for whom the government has endeavoured to increase liquidity by empowering NBFCs, loan restructuring and moratorium and easy availability of credit. The implementation of these measures must be smooth to encourage the sector to participate whole heartedly in the Atmanirbhar revolution. The current expansion of the definition of MSME sector would help more production capacities to come up. It is imperative that many big players can identify competent small industry partners and associate them to produce engineering goods hitherto imported, based on supply assurance of required steel grades.

Import substitution always offers a tremendous challenge of matching the quality and price competitiveness. Being a part of Global Value Chain provides relief to achieve economic scale of operation and offer competitive prices. Thus, the process of GVC in each component and sector must start immediately. The government wings, Niti Aayog and other professional agencies, can initiate sector and component specific studies on huge potential of the global market.

It is observed that issuance of global tender for procurement of goods and services has made limited efforts towards indigenisation. The call for a self-reliant India would be successful if only Indian manufacturing is able to pull up its strings in all fronts.

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