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ARTICLE : Initiatives to Boost Manufacturing Growth
Saturday, 26 January 2013 05:17

Initiatives to Boost Manufacturing Growth

The Global economic turmoil has impacted the overall economy in general and industry in particular. This is quite evident from the deceleration witnessed in the performance of industrial sector in the recent past.

During 2011-12 industrial growth in terms of the Index of Industrial Production (IIP), released by the Central Statistics Office (CSO), showed a low growth of 2.9% compared to 8.2% growth registered in 2010-11. The moderation in the industrial growth, however had started in 2008-09. The IIP growth rate was 2.5%  in 2008-09 which improved slightly to 5.3% in 2009-10 compared to the peak growth rate of 15.5% achieved in the year 2007-08.

Manufacturing Growth

During 2011-12, a low growth in manufacturing (3.0%) was a main reason for moderation in IIP growth. The cumulative growth of manufacturing sector was 1.0 per cent during April-October, 2012-13 compared to its 3.8 per cent growth during corresponding period of the previous year. Similar to the overall industrial growth, the reasons for moderation in the growth of manufacturing include global slowdown, moderation in domestic demand, hardening of interest rates etc.

Amongst the manufacturing goods the moderation in its growth rate is largely accounted by the performance of capital goods and intermediate goods which has been in the negative trajectory for most part of the year. Capital goods witnessed a sharp decline in growth during 2012-13 (April-October) with growth rate of –11.4%. Items such as Boilers; Grinding Wheels; Cement Machinery; Sugar Machinery; Textile Machinery; Plastic Machinery Incl. Moulding Machinery; Transformers (Small); Earth Moving Machinery; Computers has shown a consistent negative growth.

Measures to Boost Manufacturing

The future trajectory of the index of industrial production (IIP) depends largely on the revival of investment. Low economic activity due to weak investment sentiments and global slowdown is well reflected in National Accounts Statistics.  Gross Fixed Capital Formation (GFCF) as a measure of addition in productive capacity of the economygrew at 5.5 per cent in 2011-12 compared to 7.5 per cent in 2010-11. The GFCF as a percent of GDP at 2004-05 prices moderated to 32.0 % in 2011-12 compared to 32.5 % in previous year. Gross Fixed Capital Formation grew at 4.1 percent in the second quarter of 2012-13 against 0.7 percent in the first quarter.

The Government has been taking confidence building measures for improving the industrial climate and manufacturing in the country. Three important initiatives taken in this regard are announcement of National Manufacturing Policy (NMP), implementation of Delhi Mumbai Industrial Corridor (DMIC) Project and policy reforms to promote Foreign Direct Investment (FDI).

National Manufacturing Policy (NMP)

The National Manufacturing Policy (NMP) was approved by the Government in October, 2011. The major objectives of the policy are for enhancing the share of manufacturing in GDP to 25% and creating additional 100 million over a decade or so.  Other  quantitative and qualitative changes that are envisaged by the policy include creation of appropriate skill sets among the rural migrant and urban poor to make growth inclusive; increasing domestic value addition and technological depth in manufacturing; enhancing global competitiveness of Indian manufacturing through appropriate policy support; ensuring sustainability of growth, particularly with regard to the environment including energy efficiency, optimal utilization of natural resources and restoration of damaged/ degraded eco-systems etc.

The Policy also provides special focus to the industries that are employment intensive, those producing capital goods, those having strategic significance, small and medium enterprises, public sector enterprises besides industries where India enjoys a competitive advantage etc.

In addition, specific instruments have been conceptualized under NMP to achieve its stated objectives. Accordingly the policy envisages among others - rationalization and simplification of business regulations; simple and expeditious exit mechanism for closure of sick units while protecting labour interests; financial and institutional mechanisms for technology development, including green technologies; industrial training and skill up gradation measures; incentives for SMEs, clustering and aggregation support through National Investment and Manufacturing Zones (NIMZs), trade policy etc.

Promoting clustering and aggregation, especially through creation of NIMZs is a major policy instrument of NMP. NIMZs as key instruments to catalyze the growth of manufacturing are envisaged to be developed in the nature of green field industrial townships, benchmarked with the best manufacturing hubs in the world. The Zones are expected to help in meeting the increasing demand for creating world class urban centres in India, while absorbing surplus labour by providing them gainful employment opportunities. These NIMZs will seek to address the infrastructural bottleneck which has been cited as a constraining factor for the growth of manufacturing.Ten NIMZs have been announced, eight of which are along the Delhi Mumbai Industrial Corridor (DMIC).

Delhi Mumbai Industrial Corridor (DMIC) Project

The Delhi – Mumbai Industrial Corridor (DMIC) Project is being implemented on both sides of the 1483 km long Western Dedicated Rail Freight Corridor between Dadri (UP) and JNPT (Navi Mumbai).   The project seeks to create a strong economic base with a globally competitive environment and state-of-the-art infrastructure to activate local commerce, enhance investments and attain sustainable development.  The DMIC Project covers the six States of Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Gujarat and Maharashtra.  The DMIC Development Corporation (DMICDC) was incorporated in January 2008 for project development, coordination and implementation of the numerous projects.

Looking at the magnitude and diversity of the project, it is planned to be implemented in phases. Initially, eight industrial cities have been taken up for development.

So far the overall perspective plan for the entire DMIC Region has been completed.   The Master Planning for the Investment Regions and Industrial Areas taken up initially to be developed as New Cities in Gujarat, Madhya Pradesh, Haryana, Rajasthan and Maharashtra have been completed and Master Planning in Uttar Pradesh has started. The State Governments have initiated the process of obtaining land for the new industrial regions/areas as well as for the Early Bird Projects.  Environmental Impact Assessment (EIA) Studies have been initiated for five industrial cities. DMICDC had initiated development of Smart Communities or Eco-Cities that can contribute to improving the sustainability of the DMIC region. Japanese technology and expertise is being made available under collaboration with METI, Government of Japan for the Smart Community projects. Significant progress has been reported by DMICDC in the development of Smart Communities or Eco-Cities.  Along with the planning of each city, preparation of feasibility studies for Early Bird Projects has been taken up on the recommendation of the State Governments. These projects are in the sectors of water supply, transport connectivity, logistic hubs, mega industrial parks, knowledge cities etc.

As the Master Plans progressed, it was felt necessary and essential that new industrial cities must be created on the back of world class trunk infrastructure i.e. drainage, sewage, solid waste, water supply, internal roads. Without the trunk infrastructure the development of PPP projects in greenfield cities was not feasible and it was felt that this may lead to real estate development without trunk infrastructure and a developed backbone.

Accordingly the project was restructured in September, 2011 with an Implementation Fund of Rs.17,500 crore to be utilized over a period of five years and an additional project development Fund of Rs.1000 crore for project development.  The land for the new industrial cities will be the contribution of the State Government.

The ‘DMIC Project Implementation Fund’, is a revolving fund, and has been set up as a Trust.  It will be a repository of Government of India financial assistance. The funds will flow from the Trust to the SPVs and the Trust will receive upside from bidding and monetization of land values. The Trust will also provide resources to DMICDC for project development activities.

The Japanese Government has also announced their financial support for DMIC project to an extent of US $ 4.5 billion in the first phase for the projects with Japanese participation.

Foreign Direct Investment (FDI) Policy

Domestic savings in India have not been adequate to meet the investment requirement of the country. The ratio of domestic savings to GDP has generally been lower than the ratio of GCF to GDP. During 2008-11 share of Gross Domestic Capital Formation in the GDP was 35.3% whereas share of domestic saving during the period was only 32.7%.  Capital inflow from other countries, particularly of an investment nature, therefore adds to the domestic investment.  It also brings in new management practices and technologies, besides subsequently contributing to enhancement of the export potential/earning of the country.

India’s attractiveness as an investment destination has to be seen in the context of major economic reforms embarked upon by the Government of India since mid-1990s, the objective being the achievement of a greater level of integration with the world economy and the emergence of India as a significant player in the globalization process. The larger and ultimate goal however is to step up the scale of development of the economy. As a part of this process, the FDI policy is being liberalized progressively on an ongoing basis in order to allow FDI in more industries under the automatic route.

Some recent changes in the FDI policy, besides consolidation of the policy into a single document include FDI in Multi-Brand Retail Trading up to 51% subject to specified conditions; increasing FDI limit to 100% in Single-Brand Retail Trading; FDI up to 49 percent in Civil Aviation and Power Exchanges;  FDI up to 49 percent in  Broadcasting sector under the automatic route and FDI beyond 49 percent and up to 74 percent under the Government route both for Teleports and Mobile TV.

The advantages of India as an investment destination rest upon strong fundamentals, which include a large and growing market; world-class scientific, technical and managerial manpower; cost effective and highly skilled labour; abundant natural resources; a large English speaking population; independent judiciary, etc.  This is now recognized by a number of global investors.  Ongoing initiatives, such as further simplification of rules and regulations, improvements in infrastructure are expected to provide the necessary impetus to increase FDI inflows in future.

The Government continues to make efforts to increase economic cooperation with the developing as well as developed countries through different fora such as Joint Commissions/Joint Committees, other bilateral channels like interaction with the delegations visiting the country and organizing visits abroad for discussions on issues of mutual interest and business/ investment meets between Indian and foreign entrepreneurs to stimulate foreign investment into India. It has announced the setting up of ‘Invest India’, a joint venture company between the Department of Industrial Policy & Promotion and FICCI, as a not-for-profit, single window facilitator, for prospective overseas investors and to act as a structured mechanism to attract investment.

In addition, the Government has initiated implementation of the e-Biz Project, a Mission Mode Project under the National e-Governance Plan (NeGP) for promoting an online single window at the national level for business users. The objectives of setting up of the e-Biz Portal are to provide a number of services to business users, covering the entire life cycle on their operation. The project aims at enhancing India’s business competitiveness through a service oriented, event-driven G2B interaction.