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What needs to be done for large-scale manufacturing to take off

What needs to be done for large-scale manufacturing to take off

You cannot expect 'Make in India' to bring a revolution in just two months. We must understand the huge challenges that our country faces, writes Amitabh Kant.

(Illustration: Ajay Thakuri) (Illustration: Ajay Thakuri)

Amitabh Kant
Amitabh Kant
ABOUT: A 1980-batch IAS officer, Amitabh Kant is one of the go-to senior bureaucrats in the Modi administration. In his past assignments, the latest as CEO and Managing Director of Delhi-Mumbai Industrial Corridor Development Corporation, Kant has helmed infrastructure projects and highimpact marketing initiatives cutting across governments, private sector, NGOs and civil society.

The challenge for India is to grow at nine to 10 per cent a year over three decades or more to be able to create jobs for its young population. This challenge can be met only if manufacturing expands at very high rates because only manufacturing can create jobs. Until now we have largely grown on the back of the services sector, which accounts for some 60 per cent of our gross domestic product (GDP). The share of manufacturing has stagnated around 15 per cent, and this, in the long run, has adverse repercussions for India. So, India needs to focus on manufacturing.

In the past six months, the government has taken a series of measures to get this right. It has focused, first and foremost, on the ease of doing business - scrapping a number of processes, procedures, paperwork, old rules, laws and acts which were impacting manufacturing. So, the government is dismantling a lot of controls. It has taken several measures to do away with human intervention. It is deregulating, delicensing, and integrating different departments together. All these are big measures and will pay India in the long run.

The government has opened up foreign direct investment (FDI) in a number of sectors. It has, for instance, in the railways sector allowed 100 per cent FDI for operations, maintenance and construction. It has opened up the construction sector in a big way and has deregulated almost 60 per cent of the items under the defence manufacturing category. It has allowed 49 per cent investment in defence manufacturing, and in modernisation and state-of-the-art cases, FDI can go up to 100 per cent. So the FDI regime is liberalised now.

To my mind, defence manufacturing is an early flower that can be plucked if we focus strongly on it. If we are able to play our requirement of defence effectively, then we can get a lot of good manufacturing in India.

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India is thinking of size and scale, which is very necessary. Manufacturing can happen if you are able to bring in an ecosystem - create backward and forward linkages, a supply mechanism, better labour laws - in some centres of excellence. This government has focused on very large industrial clusters, industrial corridors and smart cities. It has to create large cities where 35 to 40 per cent of GDP comes from manufacturing.

Land laws
Land laws
This government appears to be fairly determined to drive manufacturing, and there's a lot of energy and vibrancy. But there's also an unfinished agenda of the government. For large-scale manufacturing to take off, there are several other things that need to be done.

There are certain legacies of the past which need to be corrected. For example, we have one of the worst labour regimes. We need to set that right. An EXIM Bank study says that only Pakistan has worse labour laws than us. In the past six months, certain labour reforms have been carried out. The expectations are so high that we need big-ticket reforms.

The last government had messed up badly on land laws. When I talk about land acquisition laws, I am not talking about not giving a higher price to the farmer but the present act is anti-farmer because it is full of procedures and processes which never allow farmer to monetize the land value. It will work against his interest. Everything is at a standstill. The government needs to quickly reverse this whole process.

Also, the government needs to roll out the goods and services tax (GST) and resolve problems plaguing the energy sector. In a number of cases of manufacturing, there's an inverted duty structure which has risen either as a result of tax policies or free trade agreements signed earlier. It is important to set this right. Some of this work was done in the last budget but this is an ongoing exercise.

The last key point that the government needs to do is to bring in greater consistency and predictability of tax policies. This government, to my mind, has not done anything wrong in the past six months but there are severe legacy issues. Bad tax policies, bad labour laws, bad land acquisition policies need to be set right to take India to a higher growth trajectory.

Under the 'Make in India' scheme, the government has identified 25 sectors where India can be a global champion.

These are sectors - automobile, auto components, electronics, pharmaceuticals, food processing, leather - where a lot of work has been done and a lot of work is going on right now. I think India has a competitive advantage in these sectors. Different ministries are working on this.

The challenge is that while we are driving these sectors, the labour intensity of manufacturing is falling. Eventually, you have to have growth with employment. Therefore, India will have to push for advanced manufacturing in a vast range of areas.

Essentially, the world is moving to an area where manufacturing is increasingly getting converged with software. All leading manufacturers of the world are moving towards hard manufacturing with information technology to bring in efficiency. India has a unique advantage because it produces the best programmers in the world. Our programmers have gone to work with top companies globally.

Therefore, if the next wave of advanced manufacturing will require convergence of manufacturing and information technology, I think India has a unique potential. Under the 'Make in India' scheme, 65 proposals have been cleared in defence manufacturing.

While advanced manufacturing in certain areas is necessary, there's also a need to push for labour-intensive manufacturing because you have to create jobs. Therefore, leather manufacturing, food processing, gems and jewellery, and textiles are key areas to create jobs. We need to look at large-scale job creation in partnership with the private sector.

Manufacturing share in GDP
Manufacturing share in GDP
Indian manufacturing, if it has to grow, has to take off by being part of the global supply chain.At least 15 states in the country should have manufacturing as the key driver of growth and these states must drive India's manufacturing. If the ambition is to grow at nine to 10 per cent, and agriculture is growing at three per cent, there's a lot of disguised unemployment. The only way for India to move forward is to take disguised employment out of agriculture and create employment in manufacturing sectors.

I think that, by 2025, we should be able to create 100 million new jobs and take the share of manufacturing in GDP to 25 per cent. No country in the world has grown on the back of agriculture. Look at Japan, South Korea, Singapore, Taiwan and China. All these countries have grown on the back of manufacturing. Since China is increasingly becoming expensive due to wage rates rising and is facing labour unrest, India has an opportunity to become the factory of the world. There's no reason why India should not be a manufacturing hub. We have ports, young population, a long coastline and good private sector.

I have been working on improving the ease of doing business for the past six months. It is long, sustained hard work. It is a mindset issue. You cannot expect 'Make in India' to bring a revolution in just two months. We must understand the huge challenges that our country faces. We have to get the ecosystem right - do away with clearances and have a transparent and consistent policies.

Published on: Dec 18, 2014, 2:48 PM IST
Posted by: Trupti Agarwal, Dec 18, 2014, 2:48 PM IST