Business Today

How to revive manufacturing

B. Muthuraman, Chairman, CII Manufacturing Council and Vice Chairman, Tata Steel says industry has identified 10 areas that should be the new government's focus to boost growth.
B. Muthuraman | Print Edition: July 20, 2014
How to Revive Manufacturing

The snail pace growth of manufacturing is of concern for both the government and the industry. Statistically speaking, manufacturing needs to grow 2%-4% higher than the economic GDP to sustain an equitable growth. But this has not happened. India's GDP is growing at an average of 6.68% for the last five years and for this financial year, it is expected to grow only at 4%-5%.

CII monitors the industry trends on a quarterly basis through its ASCON Survey and for the results for Q1 2014 (Jan-March) reveal that important sectors such as auto, capital goods, white goods, etc. and core sectors such as steel and cement have been under -performing since the last 4 quarters. On a positive note, the announcement of the extension of the stimulus package to auto and capital goods sector by the Finance Minister is welcome and has risen hopes of the industry from the budget and the new government.

CII has continuously flagged issues regarding stagnation in employment creation, declining exports and investments, low demand creation, high corporate taxes, inflexible labour laws, delays in obtaining clearances and approvals for mining leases, forest clearances and land for projects, uncertain raw material linkages. These have led to a low global ranking in terms of India as a preferred manufacturing destination.

All eyes are now on the new government and the industry expects infusion of appropriate measures that will stimulate industry growth. The budget is around the corner and along with the fiscal packages, the industry identifies 10 areas that should be the focus of the new government to bolster growth:

1. Create demand and increasing investments by expediting process of clearances.

-Set up state level Project Monitoring Groups to monitor and fast track project clearances at state level.

-Expand the scope of Cabinet Committee on Investment by reducing the threshold level of projects to Rs 500 crore and eventually further reducing it to Rs 250 crore.

2. Immediately create an Inter - Ministerial Group on Manufacturing, chaired by Prime Minister which should cover aligned ministries such as steel, mining, chemicals and sector ministries such as labour, environment, etc. as a single point of contact.

3. Implement delayed Goods and Service Tax (GST) without any further delay. No goods and services should be exempted from GST.

4. Allow 25 percent accelerated depreciation for investment in plant & machinery; Reduce threshold limit of investment to Rs. 50 crores which would encourage midsized companies to participate as well; The quantum of deduction should be enhanced to 25 percent and investment allowance should also be eligible for relief under MAT provisions to avoid rendering this benefit notional; Correct inverted duty structure.

5. Focus and promote big ticket projects in sectors such as defense production, ship building, aircraft component manufacturing, textiles, ICTE Hardware. One key step would be to give deemed exports benefits to domestic tariff area sales in these sectors; this will boost value added manufacturing.

6. A quick move towards announcing policies such as New Steel Policy 2012, Chemicals Policy and the Textile Policy and further introducing policies such as the Scrappage Policy for Commercial vehicles.

7. Resolving the mining conundrum as it will be a major investment booster and review our labour regulations to enhance competiveness of the industry.

Promote industrial clusters and industrial parks to improve industry scale and employment opportunities.

Ease business regulations as it a connecting thread for investments and demand. CII through its Task Force on Ease of Doing Business has already submitted recommendations to the government on 4 parameters of land acquisition, taxation, starting a new business and contract enforcement, etc.

10. Review and revisit the existing FTAs and CEPAs to arrest the export slowdown and simultaneously make inroads to new markets such as Africa, Latin America, etc. India entails strong potential to build itself as a manufacturing hub. We need to regenerate our strengths and leverage them in a strategic and streamlined process.

From an industry point of view, I consider this as the most opportune time for India to move up the ladder; we have a new government, fresh thinking and a new enthusiasm. The government needs to make most of this time and seize this opportunity to bring a manufacturing revolution in the country.

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