A timely National Manufacturing Policy

The long-awaited policy has rightly received accolades for its timeliness, especially when the manufacturing sector is facing torrid time due to dampening demand and rising cost of capital. The policy can change the fate of manufacturing in India and turnaround the overall economy, if implemented well, say experts.

Emerging economies like China, South Korea and Taiwan have benefited immensely in the past with the backing of a strong manufacturing sector but India has not failed badly mainly due to a lack of proper policy. Take, for example, the booming telecom sector in India where the market for total telecom hardware is around $50 billion, but share of locally manufactured products is just around 15 per cent.

In the Indian context, the timeliness of NMP can also be measured by the amount of succour it is expected to provide to the United Progressive Alliance (UPA) government, as many are now referring to the second tenure of the Manmohan Singh-led government as the phase of jobless economic growth.

National Manufacturing Zones

The policy addresses in great detail the environment and regulatory issues, labour laws and taxation, but it is the proposed creation of National Manufacturing Investment Zones (NIMZs) or clustering of manufacturing units has received special attention as it seeks to integrate the industrial infrastructure under one roof and achieve economy of scale in manufacturing sector to help it grow rapidly.

The concept that has helped China and other emerging economies spur their economic growth manifold and is also expected to help jobs creation keep pace with economic growth in India, where employment rate declined in the five year period ended 2009-10 to 39.2 per cent from 42 per cent in 2004-05 as against the Planning Commission’s target to create 58 million jobs in the five-year period between 2007 and 2012, according to a recent employment data by the National Sample Survey Organization (NSSO). The NSSO data also showed that only 2 million new jobs were created in India between 2004 and 2009 despite a handsome growth in country’s economy at close to 8.5 per cent annually.

A look at the manufacturing policy document reveals, NIMZs will be developed as integrated industrial townships with world class infrastructure and land use on the basis of zoning, clean and energy efficient technology with a size of at least 5000 hectare.

Further, a welcome development is that the NIMZs will be on the non-agricultural land with adequate water supply and the ownership will be with the state government, which means it will be easy to acquire land for NIMZs. It also envisages flexibility in country’s  rather rigid and unfriendly labour laws and ensures protection of workers’ rights along with a simplified exit mechanism for sick industrial units.

It also speaks volumes on the most-debated issue of environment clearance, which has of late been responsible for the pull out of many foreign companies from the Indian soil thus hampering the overall economic growth. In nutshell, the policy states that the issue of environment in NIMZs will be considered on a high priority basis. Efforts have also been made to simplify environment laws and regulations. To encourage re-investment of income, the companies within an NIMZ, the policy envisages relief from capital gains tax.

Another important feature of the manufacturing policy is its financial and development incentives to the small and medium enterprises which contributes 45 per cent of country’s manufacturing output, 40 per cent of its exports and around 8 per cent of the gross domestic product. On the whole, the policy, which promises to increase the share of manufacturing sector to the country’s gross domestic product to 25 per cent from existing 16, has come as a great relief at a time when India is strenuously trying to keep up its economic growth momentum and the percentage of manufacturing output to the gross domestic product is lower than expected.

The manufacturing output slowed recently after a spate of rate increases by the Reserve Bank of India in the past 10 months. At this juncture, due attention to manufacturing sector is important as it has a multiplier effect in creation of two to three additional jobs in allied sectors and its growth is critical for India’s vast population.

Chambers are all smiles

Industry Chambers FICCI and CII have hailed the policy for aiming to enhance India’s economic growth by creation of productive jobs. While FICCI said, it will raise GDP growth buy 15 to 25 per cent in the times to come, the CII called it a great beginning and well on time. CII Director General Chandrajit Banerjee told Deccan Herald that enacting such a policy shall enhance the global competitiveness of the manufacturing sector, restoring it to it’s pre global economic crisis stature as being one of the growth drivers of the Indian economy.

India, a country of over 120 crore people, needs at least 5.5 crore new jobs by 2015 to maintain a decent level of employment and growth, a latest survey by the research firm Crisil has suggested. However, the trade unions have opposed the policy, with the Centre of Indian Trade Union (CITU) saying its an attempt by the government to give back door entry to the so-called labour reform of  ‘hire and fire’ policy being pressed by the business houses. The All India Trade Union Congress said the workers’ rights to organise unions will be compromised.

But, like any other policy Experts believe the success of the policy will depends only in its implementation, which may face several challenges like land acquisition, industrial relations, environment clearance and so on. All these issues involve the masses, who need to be satisfied before each NIMZ is set up. Anand Seth, Dy Director General of India’s major export body, Federation of Indian Exporters Organisation said, “The manufacturing policy looks good on paper, but all will depend on how it is translated into action.”

At present, India’s economy is heavily reliant on the service sector, which accounts for about 60 per cent of the GDP, but the trend must move from services to manufacturing if India aims at 9 per cent GDP growth rate in the medium to long term, experts say.