S D Naik

The roadmap is still hazy

Updated on: Jun 16, 2011
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A manufacturing policy should spell out short-term, medium-term and long-term goals, with specific time-frames for each.

The long-awaited National Manufacturing Policy finally received the in-principle approval of the high-level committee headed by the Prime Minister on June 9. However, even now there is no consensus among the members and stakeholders.

In particular, there are concerns and objections voiced by the Ministries of Environment and Forests and Labour over the proposal for the creation of National Investment Manufacturing Zones (NIMZs).

The policy draft aims at raising the share of the manufacturing sector in gross domestic product (GDP) to 25 per cent from the current 16 per cent and the creation of 100 million new jobs by 2025.

The targets are no doubt ambitious considering the fact that the sector's share in the national GDP has remained unchanged at around 16 per cent since 1991, with the number of jobs created none too encouraging.


The UPA government has been toying with the idea of providing a big push to the manufacturing sector for quite sometime now, but because of continued dithering, things have not been moving beyond the preparation of plans and strategies.

The Planning Commission, the National Manufacturing Competitiveness Council (NMCC) and the Industry Ministry have been working separately on a long-term manufacturing policy for years.

However, because of lack of co-ordination among most of the agencies and institutions, things have failed to move ahead. Then in 2008, the V. Krishnamurthy-led panel wrote out a national strategy on manufacturing and in April 2010, the government circulated a draft National Manufacturing Policy among stakeholders for consultations.

At that time, the objective was to raise the share of manufacturing in GDP to 25 per cent by 2022. Now the same objective is proposed to be achieved by 2025.

But even now, there is no guarantee the policy will be finalised and implemented any time soon. Since there are certain controversial proposals in the draft, the majority of the members have called for further consultations on the issue before giving the policy a formal approval.


The policy draft has suggested introducing labour market flexibility and balancing it with job loss insurance funded by employers, setting up of a Manufacturing Industry Promotion Board (MIPB) and a careful evaluation of free trade agreements for their impact on the domestic industry. These provisions will take some time to get formalised. Employers may not agree to fund the job-loss insurance scheme.

However, the most controversial proposal relates to the proposal relating to National Investment Manufacturing Zones (NIMZs) as mega investment regions equipped with world-class infrastructure facilities.

As in the case of the Special Economic Zones (SEZs) that were proposed six years back, the NIMZs are also bound to be bedeviled by the problems associated with land acquisition. In fact, of late, these problems have been aggravated following a new awakening among farmers.

Incidentally, the decision to set up SEZs in China or exclusive industrial zones in the East and Southeast Asian countries was dictated by the prevailing conditions in those countries which do not necessarily apply to India.

In fact, in the interest of a more balanced regional development and inclusive growth, our policy makers would do well to defer their decision in this regard and move ahead with what can be achieved without much hassle and in a relatively short span of time. It would be better if the new manufacturing policy outlines the short-term, medium-term and long-term measures needed separately with specific time-frames.

For instance, procedural simplifications, and a more liberal foreign direct investment (FDI) policy aimed at induction of new technologies could be implemented soon.

The way forward

The medium-term policies could include the much-needed changes in labour laws, improving the power supply situation and transport facilities and a significant reduction in transaction costs for exporters.

Ensuring uninterrupted power supply at reasonable prices alone could help a great deal in providing a significant boost to the manufacturing sector.

Currently, a manufacturer in India has to comply with 70-odd legislations and file returns periodically, the total returns amounting to more than 100 in a year.

Not surprisingly, the World Bank data for 2011 relating to “Ease of Doing Business” ranks India 134 out of 183 economies in the world. This is indeed a deplorable situation even after two decades of reform process.

Though the National Manufacturing Competitiveness Council (NMCC) started functioning from January 2005, nothing much is heard about the work done by it.

No wonder then that in recent years, Indian corporate houses found it easier to acquire manufacturing bases abroad instead of dealing with the plethora of problems within the country.

They find better prospects and relatively cheaper feedstock abroad along with less procedural problems in shifting their manufacturing bases abroad or going for acquisitions.


Published on June 24, 2011

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