The future lies in manufacturing

Investments in manufacturing are imperative if a significant proportion of our massive rural workforce has to move into higher income, higher skilled economic activity, thereby putting India back on a sustainable high growth trajectory.

The share of manufacturing in India’s GDP has remained static at about 16 per cent for over 30 years now. The National Manufacturing Policy (NMP) 2011 aims to increase the manufacturing sector’s contribution to 25 per cent of the GDP by 2022 by growing at 12-14 per cent in the medium term, and creating 100 million new manufacturing jobs by 2022.

The NMP gives special focus to industries that are employment-intensive, produce capital goods and have strategic significance, including micro, small and medium enterprises (MSMEs) and public sector enterprises. The NMP also seeks to promote manufacturing by creating national investment and manufacturing zones (NIMZs).

To provide a fillip to the successful implementation of the NMP, the Prime Minister has launched the ‘Make in India’ campaign.

Multi-pronged approach

In the past, India has delivered inclusive benefits through the Green Revolution in agriculture and the White Revolution in dairy. The ‘Make in India’ initiative can similarly transform manufacturing into a hotbed of new jobs, aided by a robust domestic demand, an abundance of resources, the availability of a low-skilled/semi-skilled labour force, an increasing focus on R&D, a strong entrepreneurial culture and a sound legal system modelled on English law.

The first priority is to address the regulatory and procedural hurdles impeding business. India ranks an abysmal 142 out of 189 in the World Bank’s Doing Business survey. This requires concerted efforts by both the Centre and the State governments to implement a 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 rollout of GST is essential to harmonise indirect taxes which, coupled with reduction in minimum alternate tax, will lead to a lower tax burden for the industry. The duty structure for raw materials and components must be reduced vis-à-vis finished goods to help strengthen domestic value-added manufacturing.

Flexible labour regulations encourage the expansion of formal employment without reducing labour market vibrancy, which is essential for the manufacturing sector to thrive. In this regard, the 44 central labour laws along with the 160-odd State labour laws have to be rationalised into four broad categories: industrial relations, wages, employment standards, social security. On the other hand, flexible labour laws can strike a balance between workforce welfare and industry interests to boost income and employment opportunity. Land, power and infrastructure are crucial enablers for industrial growth. Land banks can be created or enlarged in the States to earmark areas for industries. Relaxed norms to monetise agricultural land will benefit the 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 as well as stimulate production in allied sectors such as coal, iron and steel, power plant equipments and so on.

Assured power supply from the grid determines the sustenance of SMEs that cannot afford to set up captive sources of power. 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.

FDI policy has to be relaxed to promote overseas investments and build Indian manufacturing expertise in the long run. The new foreign trade policy should be integrated with ‘Make in India’ to promote industry segments with high domestic value addition such as textiles and electrical goods, and strengthen the manufacturing base.

Brand and geographic appellation, trust marks 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 the ‘Make in India’ initiative.

Labour intensive sectors have consistently lagged capital intensive ones in exports growth since 1991. Parity in growth for these sectors has to be ensured for higher employment generation.

Developing human resource capabilities becomes imperative to improve labour productivity and make a strong pitch for attracting investments. A dual 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. 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.

Textiles 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 considerably behind its East Asian peers in this regard. India also needs to develop self-reliance in strategic sectors such as aerospace and defence. Private sector participation can reduce our dependence on imports which is currently around 70 per cent.

Progress in the manufacturing sector holds the key to leveraging India’s democratic dividend. ‘Make in India’ can catapult India to a sustainable and inclusive growth trajectory.

The writer is the president of Assocham and MD & CEO of YES Bank