Progress in the manufacturing sector holds the key to leveraging India’s demographic dividend of the world’s largest pool of educated young jobseekers
Investments in manufacturing are imperative if a significant proportion of our rural workforce has to be transitioned into higher income, higher skilled economic activity, putting India back on a sustainable high growth trajectory.
The share of manufacturing in the GDP has remained static at about 16% for over 30 years. The National Manufacturing Policy (NMP) 2011 aims to increase manufacturing sector’s contribution to 25% of GDP by 2022, growing at 12-14% in the medium term and creating 100 million new jobs by 2022. NMP lays focus on industries that are employment-intensive, produce capital goods and have strategic significance, including MSMEs and PSUs. NMP seeks to promote manufacturing by creating National Investment and Manufacturing Zones (NIMZs).
To provide a fillip to the implementation of NMP, the PM launched the ‘Make in India’ campaign. The initiative plans to facilitate investments and transform India into a global manufacturing hub. The initial positive feedback from investors and global industrial majors hold encouraging prospects for this sector and can be a game-changer in the long run.
India has delivered inclusive benefits through transformational large-scale programmes such as Green Revolution and White Revolution. ‘Make in India’ can similarly transform manufacturing into a hotbed for creating new jobs, aided by robust domestic demand, abundance of resources, availability of low-skilled and semi-skilled labour force, strong entrepreneurial culture and a sound legal system modelled on the English Law.
The first priority is to address the regulatory and procedural hurdles that impede business. India ranks an abysmal 134 in the World Bank’s Doing Business survey. This requires concerted efforts by both the central and state governments to implement single-window clearance mechanism to facilitate starting a business and rationalising compliance or inspection processes. Special courts can be set up to fast-track adjudication of industrial disputes. A nationwide roll-out of GST is essential to harmonise indirect taxes which, coupled with reduction in MAT, will lead to lower tax burden for the industry. Duty structure for raw materials and components must be reduced vis-a-vis finished goods to help strengthen domestic value-added manufacturing.
Flexible labour regulations encourage expansion of formal employment without reducing labour market vibrancy. In this regard, the 44 central labour laws along with 160-odd state labour laws have to be rationalised into four broad categories: industrial relations, wages, employment standards and social security. Global experience suggests that poorly-designed labour market regulations reinforce labour market segmentation and limit potential economies of scale. Flexible labour laws can strike a balance between workforce welfare and industry interests to boost income and employment.
Land, power and infrastructure are crucial enablers for industrial growth. Land banks can be created or enlarged in the states to earmark area for industries. Relaxed norms to monetise agricultural land will benefit land acquisition process. The Land Acquisition Act has to be revisited to allay industry concerns with some aspects of the Act. Stalled power projects can be prioritised to augment existing grid capabilities and stimulate production in allied sectors such as coal, iron & steel, power plant equipment. Assured power supply from the grid determines the sustenance of SMEs that cannot afford to set up captive power sources. Road, rail and port connectivity can be improved through a robust PPP architecture which can help attract private sector capital for the planned $1 trillion investment in infrastructure. NIMZ is another effective vehicle to provide state-of-the-art infrastructure to manufacturing.
The FDI policy has to be relaxed to promote overseas investments and build Indian manufacturing expertise. The new FTP should be integrated with ‘Make in India’ to promote industry segments with high domestic value addition such as textiles and electrical goods. Brand and geographic appellation, trustmarks and traceability of Indian products have to be created for key sectors with globally competitive capabilities.
The proposed institute—3P India—should be empowered to develop a robust PPP framework incorporating suitable dispute resolution mechanism and encourage private sector participation in ‘Make in India’.
Labour-intensive sectors have lagged capital-intensive ones in exports growth since 1991. Parity in growth for these sectors has to be ensured for higher employment generation. Offset programme in capital goods production can promote the indigenous vendor-supplier ecosystem. A competitive exchange rate can offset inflation costs and help maintain the advantage of Indian exports.
Developing human resource capabilities is imperative to improve labour productivity and attract investments. Dual training programme of ITI training cum industrial apprenticeship can be rolled out in consultation with industry. A vibrant industry-academia partnership can build domestic R&D capabilities to nurture a design and innovation ecosystem. The stable Indian legal and judicial system provides the necessary confidence for technology transfer into India through tie-ups with global institutes.
Apart from broad-based policy interventions, there is also an urgent need to focus on specific sectors where India has the potential to scale up or enjoys a distinct comparative advantage. The textile sector is a mass employer with strong export potential. Initiatives like easing cost of capital, cluster-based development and affordable housing for migrant workers can boost the prospects of this sector. India must build better private sector expertise in manufacturing super-critical power plant equipment and reduce dependence on imports from China.
IT and electronic hardware needs incentives such as favourable duty structure, tax sops and dedicated manufacturing clusters to kick-start investments. India has been lagging behind her East Asian peers in this regard. India needs to develop self reliance in strategic sectors such as aerospace and defence. Private sector participation in the value chain has to be increased to achieve higher levels of indigenisation in strategic segments. This can reduce our dependence on imports, currently around 70%.
Progress in the manufacturing sector holds the key to leveraging India’s demographic dividend of the world’s largest pool of educated young job-seekers. Holistic development of manufacturing value chain ranging from design and innovation to commercially feasible mass production has been envisaged through ‘Make in India’. If we could accomplish this mission, it would catapult India to a sustainable and inclusive growth trajectory, unparalleled in its history.
By Rana Kapoor
The author is president, Assocham, and MD & CEO, Yes Bank