The Hindu Business Line : Group on Manufacturing moots linking of FDI approvals to tech transfer

Chennai, Sept. 22 The Prime Minister’s Group on Manufacturing has suggested the formulation of a ‘manufacturing policy’, the chief elements of which would include linking FDI approvals to commitments on technology transfer and emphasis on the development of Small and Medium Enterprises.

The Group, which was headed by Dr V. Krishnamurthy, Chairman, National Manufacturing Competitiveness Council, and comprised Secretaries of the Ministries of Finance, Revenue, Commerce, Textiles and Industrial Policy and Promotion, submitted its report to the Prime Minister on Saturday.

The report, which makes a detailed study of the development of the manufacturing sector in China, Korea and several other South-East Asian nations, points to the State’s policy intervention in terms of promoting domestic value addition and protection of local SMEs. It urges that India’s Manufacturing Policy should be built on similar lines.

On India’s economic development since the beginning of liberalisation in 1991, the report notes, “it appears as though Government policy pendulum may have swung from one extreme of excessive controls to the other of abandonment or minimising the role of the State in so far as the manufacturing sector is concerned”.

Growth story

Analysing in detail the development of the manufacturing sector in eight Asian countries, the report notes that five aspects are common to all of them. First, in all these countries, robust growth of manufacturing was central in their growth model.

Secondly, government intervened to support the domestic manufacturing sector to withstand competition. Third, all these countries paid attention to SME development. Fourth, all the countries involved the industry in industrial policy making. Finally, technology development received close attention.

Noting that comparisons with high growth stories of East Asian countries including China have often been “dismissed with a facile argument” that these countries are ruled by autocratic and totalitarian regimes, the report says, “this is a dangerous explanation which seems to equate autocracy with sound policies for growth and efficiency”.

It notes that there are a number of countries which have been ruled by autocrats but did not experience high growth rates. “None of the crucial five aspects in the growth story of the eight countries is beyond the reach or scope of a democratic country,” it says.

Recommendations

The report makes several recommendations under 15 specific heads, touch upon issues such as trade and tax policies, role of PSUs, infrastructure and labour reforms. But clearly a great emphasis has been laid on technology transfer, domestic value addition and SME development.

For example, the Group recommends “a review of the current FDI policy from the point of view of technology transfer as well as national security considerations. Terming the FDI policy in respect of the manufacturing sector “very liberal”, it calls for re-examining of the present policy of permitting 100 per cent subsidiaries of foreign companies in the manufacturing sector.”

Dr Krishnamurthy told Business Line that the huge surge in imports from China and observed that it was the SME sector that bore the brunt of the Chinese competition.

The Group suggests the creation of a ‘Technology Acquisition Fund’ to enable SMEs acquire technologies.

Among the other recommendations is one for abolishing the mega power policy benefits prospectively. This would nullify the present unintended consequence of the rapid surge in imports of Chinese power generating equipment into the country – duty-free – at the cost of domestic manufacturing.

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