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he Narendra Modi government’s ‘Make In India’ campaign aims at spurring a manufacturing-led growth with more focus on the ease of doing business than on an incentive-linked investment climate.
While industry has welcomed the message from the government, along with the small measures announced in the Budget, growth would depend on improvement in domestic and external consumption, as well as a revival in capital formation led by investment in infrastructure.
The government’s campaign for transformation inmanufacturing is cast around three pillars. The first is improving business environment through the ease of doing business and de-licensing as well as enabling manufacturing by setting up industrial corridors, clusters and smart cities. For overseas capital, the measures include permitting foreign direct investment in railways, construction and defence. Although manufacturing showed a 3.5% growth in the first quarter of the current financial year against a fall of 1.2% last year, the revival is still precarious with the latest July figure for manufacturing showing a fall of one% against three% growth in July last year.
Cumulatively, however, a 2.3% growth was witnessed during the April-July period against a negative 0.1% last year, according to the index for industrial production released by the Ministry of Statistics and Programme Implementation. “It is early to predict an immediate recovery. However, the indications are optimistic. The government focus is on encouraging job creation, investments and spurring economic growth,” said Sanjay Kirloskar, chairman and managing director, Kirloskar Brothers Limited.
According to Kirloskar, the slowdown in demand from domestic and international market resulted in lower than expected growth. Short term factors like negative business sentiments owing to policy paralysis and regulatory delays brought manufacturing to its current state. “Our infrastructure needs improvement in order to compete with manufacturing clusters of China, Indonesia and Vietnam. Besides, there are long-term reasons like structural issues and delay in several clearances at state and central level, labour laws, land acquisition.” The effectiveness of delivery mechanism will be vital for the sustained growth of manufacturing industries.
The government intent would need to be backed up by improvement in domestic consumption and overseas demand, said Amit Kalyani, executive director, Bharat Forge. “The Prime Minister has laid down a roadmap with emphasis on transparency. The intent is good and results may be visible in a year’s time. But a lot would also depend on how the situation develops in the West Asia and Russia,” he said.
Success would come from effective implementation of factors that are important for Indian manufacturing to become globally competitive, said Harsh Pati Singhania, director, JK Organisation & managing director JK Paper.
Industry is near unanimous on core sector push to manufacturing. Infrastructure development is considered a vital component for the growth strategy. Kirloskar said development in infrastructure leads to two pronged effects for the economy. It generates demand for the industry and creates employment and also makes business activities competitive in the international arena. “Good infrastructure stimulates the growth of manufacturing industry by attracting investments from various geographies. Robust infrastructure will make the overall manufacturing sector efficient and cost-effective, which in turn, should make Indian goods more competitive in the global markets.”
Currently, manufacturing contributes a mere 16% to India’s GDP, compared to a 56.5% contribution by services. According to KPMG, new investment projects announced in the manufacturing sector were down 70% in 2012-13 from 2008-09. Besides, most manufacturing exports remained in the skill intensive sector
India’s share of global manufacturing stands at little over 2%. Compare it to China which has positioned itself as the workshop of the world over the years, accounting for 22.4% of global manufacturing.
Adil Zaidi, Director - Infrastructure Practice, Ernst & Young said though connecting requirement of clearances through a dashboard such as eBiz, is a welcome step to build investor confidence, the actual growth will only reflect once the fundamental challenges of availability of land, labour related issues, multiple taxation are overcome through timely reforms in Land Acquisition Act, Labour Laws and Tax regime.
