Business Today

2014 was watershed year for manufacturing

In September, Prime Minister Narendra Modi launched the 'Make in India' campaign, exhorting global investors to manufacture in India.

twitter-logo Goutam Das        Last Updated: December 24, 2014  | 14:40 IST
PM Narendra Modi
PM Narendra Modi (Photo: Reuters)

The year 2014 could go down in history as the watershed year for manufacturing. If, and only if, the sector's share in India's gross domestic product starts inching towards 25 per cent over the next decade, from about 15 per cent now.  

In September, Prime Minister Narendra Modi launched the 'Make in India' campaign, exhorting global investors to manufacture in India. The campaign hinged on three pillars - improving the ease of doing business by de-licencing and de-regulation, enabling infrastructure such as industrial corridors, and opening up foreign direct investment (FDI) in sectors such as defence, construction and railways.

There is some progress in the ease of doing business - the industry has been laid low due to environment delays, land acquisition problems and too many agencies to seek permissions from.

A new cement plant can take 43 clearances from different government organisations. While a lot is yet to be done, the government has made a start.

The process of applying for Industrial License and Industrial Entrepreneur Memorandum, for instance, is now online, which is expected to ease the filing of applications and payments.

In labour compliance, the government is streamlining a major irritant - how factory inspectors inspect and report. A new labour inspection scheme prefers a "risk-based" algorithm to pick manufacturing units for inspection, rather than human discretion. The inspector also has to upload his report within 72 hours of an inspection.

FULL COVERAGE:2014 Year In Review

An Investor Facilitation Cell is responding to queries received in response to the Make in India programme.  

Proposal clearances have picked up pace as well and most of it is visible in the defence sector. Between June and December 2014, the government's Defence Acquisition Council cleared 41 proposals totalling a mammoth Rs 1,19,720 crore.

They include submarines, surveillance aircraft, helicopters, missiles, artillery gun systems, patrol vessels, infantry fighting vehicles, among others.

These are not orders - that could take three to five years to materialise. But the government's "acceptance of necessity" is a step in the right direction.

Increasingly, ministers and government officials have been talking of private sector participation in defence manufacturing projects. FDI in the sector has been raised to 49 per cent from 26 per cent earlier.

More industrial licences have been awarded for the manufacture of defence equipment to private companies.

There were interesting developments in attracting investments on the electronic hardware side, although the government couldn't claim credit for it.

In March 2014, the previous UPA government issued letters of intent to two consortia for setting up two semiconductor wafer fabrication manufacturing facilities in India.

These will be huge investments if they materialise. The 'fabs', when they come up, is expected to plug a missing gap in the country's electronic ecosystem.

One consortium of Jaiprakash Associates Limited, IBM, and Tower Semiconductor of Israel has an investment estimate of Rs 34,399 crore.

The second consortium of HSMC Technologies India, ST Microelectronics and Silterra Malaysia Sdn. Bhd. has come up with a project cost of Rs 29,013 crore.

The year (2014) had its share of disappointments too - Nokia's Sriperumbudur factory, which at its peak, was the world's largest mobile phone plant producing more than 15 million phones a month and employed 8000, closed down in November.

Two tax disputes with overall claims of Rs 17,658 crore made it terminally ill.

In Karnataka, labour disputes surfaced. Unions resorted to strikes and sabotage demanding pay hikes, among others.

Companies such as Toyota, Bombay Rayon Fashions, auto component maker Stumpp, Schuele & Somappa, agricultural equipment maker Fowler Wetrup, and Coca-Cola were at the receiving end of these disputes.   

While irritants such as labour disputes, outdated labour laws and tax issues remain, a secular trend emerged in 2014 that could boost manufacturing in India, going ahead.

It is now amply clear that China is losing its cost competitiveness. Wages in China, particularly in coastal areas, are higher compared to India and are growing at more than 10 per cent a year.

An estimated 100 million jobs will move out of China over the next few years in labour-intensive sectors.

There has been some shift in production to India - Havells, Godrej, Micromax, Bosch, ITC, among other companies have started expanding in India.

Will this production shift strengthen in 2015? If it does, PM Modi gets the bragging rights.

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