In its suggestions to NMCC (National Manufacturing Competitiveness Council), FICCI emphasized the need for formulating a Manufacturing Policy for India to achieve a sustainable growth of 12% per annum and to increase the share of manufacturing sector in our GDP. FICCI said that the Government should formulate a comprehensive Manufacturing Policy which should provide guidelines and directions in terms of incentives and subsidies for the sector; technology development for the sector; development of sustainable raw material base; regulatory and procedural reforms; and also the guidelines for monetary and exchange rate policy to help the growth of manufacturing sector. FICCI cited the example of China which has well defined Manufacturing Policy providing incentives and directions for the growth of the sector. Also, the monetary and fiscal policies of China have as one of their main objectives the growth and development of its manufacturing sector.
FICCI said that the Indian manufacturing sector in the past has not witnessed a consistent growth. While the sector witnessed a robust growth of 11.3% in the year 2006-07, but in the current year the sector has witnessed a significant slowdown. As a result, the share of manufacturing will not increase in our GDP from the current 16% to 25% by 2015, as targeted, felt FICCI. It is important that the sector consistently grows at the rate of over 12% for next few years, for which it requires an appropriate Manufacturing Policy.
Further, the Chamber said that the manufacturing sector’s profitability has been badly affected in the last few months and Government needs to make strong interventions immediately on both fiscal and monetary front to restrain the slowdown and fall in profitability. FICCI observed that for the Quarter ending December 2007, raw material expenses of the manufacturing sector grew by 17.1% and expenses on wages and personnel grew by 22.6% vis-à-vis last year. Also, expenses on interest payments grew by 28% in Quarter ending December 2007, for the manufacturing sector. As a result, FICCI noted, that the manufacturing sector witnessed one of the lowest growth in its profits in the last two years.
FICCI said that this clearly indicates that in the short to medium run, three areas that are critical from the point of view of competitiveness of Indian manufacturing sector are availability of raw materials at competitive rates; availability of skilled manpower and availability of finance at competitive rates. While formulating the Manufacturing Policy, the focus should be on these three areas from short/medium run perspective, FICCI emphasized.
The next focus area of the Manufacturing Policy should be improvement in the productivity of Indian manufacturing sector, FICCI said. Innovation that is key to the productivity improvement, still remains low in Indian manufacturing sector as compared to international norms. FICCI observed that expenditure on innovation by formal enterprises in India remains at just 0.53% of their sales, which is very low compared to international standards. The Manufacturing Policy should also subsume an appropriate ‘Innovation Policy’ for Indian manufacturing sector, FICCI demanded. Such an Innovation Policy should be supported by appropriate regulatory framework and financial support. The policy should address wide productivity dispersions within a manufacturing sector in India. FICCI said that Indian manufacturing sector is characterized by wide productivity dispersions within a sector, as compared to countries like China, Mexico, Korea or Russia. Citing an example, FICCI pointed-out that the least productive firm in textiles or auto-component industry in India would be many times less productive than the most productive firm in these sectors.
Other important elements of the Manufacturing Policy should be the clear roadmap for procedural reforms for facilitating the project clearances and technology developments, FICCI emphasized. FICCI said that procedural reforms are essential for timely completion of projects and also to ensure that capacity constraints in one manufacturing sector do not restrict the growth or competitiveness of other sectors in the value chain. The Manufacturing Policy should also provide a Technology Roadmap for the sector by incentivising technology acquisition by manufacturers.
The policy related to Manufacturing Investment Regions (MIRs) should be the part of the Indian Manufacturing Policy in the long run. MIRs would provide world class infrastructure and integrated facilities to the manufacturers. Currently, this policy is limited to a few sectors like Petrochemicals (PCPIR), Electronic Hardware and Textiles. From the long term development of Indian manufacturing sector, the policy of MIRs should be extended to other key sectors of manufacturing like capital goods, auto-components etc.
Lastly, FICCI said that both monetary and fiscal policy should give more emphasis on the development and growth of manufacturing sector in the country. These policies should have as one of their main objectives, the development of strong manufacturing base in the country, FICCI emphasized.
