The government is planning a new policy to give the manufacturing sector a leg up, as it reckons that the current set of schemes hasn’t met the objective of increasing India’s share in global manufacturing. According to official sources, the new policy, to be implemented at the earliest, will take into account the fresh challenges to India’s factories from the global trade war and persisting protectionism.
Any new incentives for manufacturing under the policy might be linked to job creation and commitments on capital expenditure.
“The focus of the new policy is to increase the share of domestic manufacturing in world manufacturing, making India a global manufacturing hub and integral part of supply chains and simultaneously improve its share in world trade, especially of merchandise goods,” according to the sources.
Over the last decade, the government has taken several measures to boost the manufacturing sector, including the Make-in-India scheme, deep cut in corporate tax rates, and a special (now-closed) window of concessional tax for new manufacturing units, besides production-linked incentives (PLI) for as many 14 sectors. However, the share of manufacturing in the gross domestic product (GDP) has fallen from a peak and is hovering around 16%.
The Budget FY26 announced a National Manufacturing Mission and doubled the investment and turnover criteria for defining MSMEs, and raised credit guarantee cover from Rs 5 crore to Rs 10 crore.
The parliamentary panel has recently told the government that with rapidly changing industrial development, it is necessary that the domestic manufacturing policy is revised with the international trend.
Except in a few sectors like automobiles and, more recently, smart phones, manufacturing in the country has struggled to keep pace with the overall GDP. Factories employ barely 15% of Indian workforce, and have their share declining.
The latest attempt to reformulate the policy is in the wake of deficiencies in current policies like PLIs, which are not regarded by experts as the best way to deploy scarce capital. There is recognition that employment creation of the levels required won’t be possible without a broad-basing of manufacturing.
The limitation of PLIs is evident from the fact that only 5% of the budgetary funds of Rs 2 lakh crore earmarked for 14 sectors currently under their ambit has been spent yet, even though some of the schemes are half-way through their tenures.
Last week an Rs 22,919 crore incentive package was announced for non-semiconductor electronic components. It will cover displays, cameras, and printed circuit board and lithium ion cells.
For industrial policy inputs, Niti Aayog has done a study to identify sectors that will lead the manufacturing sector in the future. The scope of the study was to identify 12 sectors with most significant opportunities by analysing future trends in manufacturing, industrial capabilities, infrastructure, policy framework and market potential.
The study also looked at requirements of these sectors in terms of infrastructure, logistics, power supply and policy framework including regulatory environment, tax structure, trade agreements, and ease of doing business.