Events & Issues

New Delhi, 8 August 2011

Manufacturing Sector

NEW POLICY TO STEER GROWTH

By Dhurjati Mukherjee

The downgrading of the US credit rating from AAA to AA for the first time in history, has led to markets crashing worldwide. In India, it led to the Sensex plummeting to around 17000 with stock market analysts expecting it to decline further to 15000.  “It’s a grave situation and we are monitoring it closely”, said Union Finance Minister Pranab Mukherjee.

Importantly, this could result in the growth rate dipping from over 8 per cent to 7 per cent. With recession and employment rising in the US, Indian exports are bound to be hit in turn affecting the manufacturing sector, notwithstanding the recently formulated draft manufacturing policy. Clearly, global events have overtaken the policy’s intention of steering growth. 

The policy aims to create 100 million jobs and increase the share of manufacturing in the GDP from the present 15-16 per cent to 25 per cent by the year 2025. Entailing growth at the rate of 12-14 per cent per annum to sustain the economic growth momentum of around 9 per cent and creating nearly 100 million jobs.

A transformation in manufacturing is the need of the hour as most developed countries, including China, have taken measures in this regard. Justifiably, there have been demands that the developed world has not shown magnanimity in sharing capital and technology with their Third World counter-parts. Despite this the manufacturing sector improved significantly in these countries.

Pertinently, while in 1965 developing countries exported mainly primary commodities (85%) but by 1998 manufactured goods accounted for 79 per cent exports. In fact, a great deal of the new manufacturing in the world is now taking place in countries in which, just a few decades ago, there was practically no manufacturing.

The Indian manufacturing sector has also made rapid strides since the last decade. Following the 1992 economic reforms the manufacturing sector got its act together presenting a face of confidence and growth. Whereby its growth in 2010-11 hovers around 5.5 per cent and for the fiscal it is roughly 8.5 per cent.

Economists have argued that the country could attain high growth on a sustained basis only through policies that give push to manufacturing. The new policy has proposed national investment and manufacturing zones (NIMZs) which would be spread across 5000 hectares or 12,500 acres on an average. Apart from this, there have been other notable suggestions on creation of land banks, digitizing of land and resource maps and utilizing land locked up in non productive use.

The first NIMZ being considered would be spread over three States along the western railway corridor, Haryana, Rajasthan and Gujarat. The Government plans to earmark Rs 3500 crores every year for the next five years to set up the first of the seven industrial cities along the Delhi-Mumbai corridor.

The Prime Minister along-with experts avers that manufacturing is critical for the country to evolve from a farm-based economy. Recall, a few years back Manmohan Singh told FICCI that “manufacturing is the sponge which absorbs people who need to move out of agriculture in pursuit of higher incomes”.

However, he expressed concern that the share of manufacturing in the national income had only shown a marginal improvement from 5.8 percent in 2001 to a little over 20 per cent in 2006. The former President, Abdul Kalam, too wanted the Government to launch a 10-year National Manufacturing Initiative that would act as a driving force for employment and economic growth.

True, the sector has overcome basic challenges like inefficiency, quality standards and high cost of production, India is still way behind in manufacturing with it accounting for hardly 20 per cent of the GDP (gross domestic product.) Studies indicate the need to improve manufacturing through technological innovations and greater emphasis on research and development (R&D) given our large scientific and technical manpower. 

Besides, though information technology and telecommunications have started to overcome deficiencies in manufacturing through better monitoring it is necessary to induct more precision and skill in the process. As it would help customise production at no additional cost, thus making products more unique and attractive to the customer. It would also enable speedier innovation by cutting the time between an idea to a product in the market.

Importantly, while manufacturing techniques in the heavy industrial sector have greatly improved it is not so in the small scale and cottage industries sector. Most of their products do not match international standards and the production costs are high. As their products are not marketed on a centralized basis, as is being done in China and many other countries, these industries suffer in various ways.

Thus, if manufacturing is handled effectively by a centralised agency, in India and abroad, the small and cottage industries would greatly benefit and their turnover would increase. This would give an impetus to it to develop their manufacturing technologies, become quality conscious and cost effective.

To fulfill the objectives of the policy, it is necessary that infrastructure, specially power needs to be provided along-with ensuring that environmental norms are not violated with strict adherence to rules. Also, Parliament needs to consider provisions objected to by the labour and environment ministries.

The Government could take a leaf from certain recommendations made by the National Manufacturing Competitiveness Council for a national strategy for manufacturing a few years ago. Namely, enhancement of Government focus on manufacturing imperatives and competitiveness; infrastructure development; creating conditions for the growth, lowering manufacturing cost,  emphasis on R&D;  adoption of global best practices; promotion of small and medium industries;  enabling public sector to emerge strong and  creating a monitoring and performance measuring mechanism.

Clearly, in today’s global economic environ people, capital, technology products and services are expected to flow freely into India. With efficiency and value engineering being recognized as tools for global competitiveness, we would need to pursue these vigorously in the coming years.

In such a situation, manufacturers have to change radically to compete successfully with foreign entrants and develop ways and means to expand operations to enter new and unexplored markets. As trade with the neighbouring countries, ASEAN, African and other nations is bound to rapidly increase sustained efforts must be made to tap these markets with a wide range of products. ----- INFA

(Copyright, India News and Feature Alliance)