Manufacturing is among the major economic activities that involves value addition that has consequential positive multiplier effects in the economy. India has the fifth largest manufacturing base in the world and thus the public policy focus on manufacturing is understandable. It is also important because manufacturing has a high employment elasticity of output that is crucial for creation of employment opportunities.
As per the second quarter report of the Quarterly Employment Survey conducted by the Union Ministry of Labour, the manufacturing sector accounted for nearly 39 per cent of all the employment generated in the selected nine sectors.
A multi-pronged approach has been adopted to support manufacturing. India’s focus on large-scale infrastructure investments will itself create enormous growth opportunities.
The focus on infrastructure development has an indirect impact on manufacturing sector. The large infra projects currently underway can help towards this end. For instance, the National Infrastructure Pipeline (NIP) built on a whole-of-government approach, is already in place covering the FYs 2019-25. The statistics available on India Investment Grid reveal that there are 15,454 projects available involving a total project cost of $1,981.83 billion as on May 5, 2022.
The National Industrial Corridor Development Programme is spearheading the integrated development of industrial smart cities having plug and play infrastructure along with multi-modal connectivity. Research has shown that investment in hard infrastructure also results in reduction of logistics cost of manufacturing. Also, a number of Production-Linked Incentive (PLI) schemes have been announced since 2020 for various sectors that incentivise manufacturing with a goal to achieve ‘Atmanirbhar Bharat’.
Customs led drive
The Customs administration can also play a role in helping growth of manufacturing. Through judicious use of import policy, production within the country can be regulated with the objective of generating greater employment in the economy. Exports to international markets, facilitated by Customs, can also be boosted from the domestic surplus generated from the manufacturing capability within the country.
The Central Board of Indirect Taxes and Customs (CBIC) has also brought forward a new and improved version of the programme focused on manufacturing and other operations in bonded warehouses. Advantages of manufacturing in bonded warehouses include saving working capital, which is usually scarce in case of small enterprises and helping in better positioning of micro, small and medium enterprises in the international market by shortening the delivery schedule in the global supply chain.
The bonded manufacturing programme has been revamped by CBIC to enable organisations gain competitive advantage, which in the words of the internationally acclaimed strategic thinker, Michael E. Porter, are two-fold — cost advantage and differentiation advantage. The facility for storage of goods in Custom-bonded warehouses allows the core company and its supply chain members to reap the benefits of postponement strategy. Postponement is the strategy of delaying changes in form and identity of a product to the latest possible point (Alderson, 1950).
Under this programme, a manufacturing unit can import goods (both inputs and capital goods) under Customs duty deferment with no interest liability. Having no investment threshold and export obligation are the other attractive features of this scheme. The duties are fully remitted if the goods resulting from such manufacturing operations done in bonded warehouses are exported. The import duty is payable only in the event where the finished goods or the imported goods are cleared in the domestic market (ex-bonding).
The onboarding to the bonded manufacturing programme is fully digital and the microsite for the same is available on ‘Invest India’ portal. Due to the end-to-end digitalization of the registration process, the entry barriers to first-time entrepreneurs are significantly reduced.
There are a number of global parallels to the bonded manufacturing programme implemented by India. In the US, bonded warehouses are designated by the US Customs and Border Protection agency, in terms of 19 US Code 1555.
Domestic manufacturing within India is also being encouraged through statutory measures like the Customs (Import of Goods at Concessional Rate of Duty) Rules, which has also been amended from time to time to take into account the dynamic needs of the industry and trade.
As acknowledged in the Budget speech 2022, a sunset phase has been envisaged for project import regulations with a view to provide a conducive environment for the growth and development of domestic industrial base. Certain exemptions have been carved in case of advanced machineries which are not manufactured within the country.
The benefits of enhanced facilitation offered by Indian Customs are further being democratised to the last mile. The risk-based facilitation system has been extended at a single bill of entry level that benefits the bulk of the economy comprising small businesses/MSME sectors. The Post-Clearance Audit (PCA), which is also an obligation under Article 7.5 of the Trade Facilitation Agreement of the World Trade Organization (WTO), is being employed comprehensively by the Customs authorities to not only ensure increased international trade through expeditious clearance of goods but also for establishing an effective audit-based control mechanism to safeguard government revenue.
Through a comprehensive mix of Mutual Recognition Agreement-Authorised Economic Operators (MRA-AEO) and Regional Trade Agreements/Free Trade Agreements (RTAs/FTAs), Indian entrepreneurs can capture a greater value of the regional and global value chains.
Moreover, the vast pool of human capital available in India at various skill levels offers a distinct competitive advantage to firms that conduct manufacturing activities within India. Manufacturing is not only business but also a major livelihood option for the majority of people as more than 45 per cent of the manufacturing output is obtained from the MSME sector in India.
It is, therefore, imperative that all the stakeholders concerned, not only the senior management of companies but also their supply chain managers, are acquainted with the benefits of the various policy initiatives taken by the government to boost domestic manufacturing. Through concerted efforts of all stakeholders, India would be able to become a manufacturing hub, sooner than later.
The writer is a Deputy Commissioner of the Indian Revenue Service. Views are personal