A policy to manufacture jobs

The National Manufacturing Policy recently cleared by the Cabinet dreams of churning out jobs for you. Why? Because another 220 million Indians will be competing with you for jobs by 2025. This scenario appears grim when viewed against the mere 27 million jobs created in the country between 2005 and 2010 (National Sample Survey).

If the policy sets out to do what it plans, at least half the universe of jobs seekers will have a livelihood through the initiatives over the next decade. Here's a low down on what the policy seeks to do and which segments would not only offer more jobs but also provide business opportunities for promoters.

Why manufacturing?

The government has chosen to focus on the manufacturing sector for two reasons: One, manufacturing creates a ripple effect creating at least two to three more jobs. Two, sustainable economic growth may be possible only through manufacturing as the sector adds value to natural and agricultural resources. The policy, therefore, seeks to increase the contribution of manufacturing sector to the GDP from 16 per cent now to 25 per cent. The sector accounts for 25-34 per cent of the GDP in most Asian countries.

To achieve the goal, the policy will focus on such segments that are employment intensive, add value through the use of local technologies, are of strategic importance, have competitive advantage and are small and medium enterprises (SMEs).

The policy would broadly seek to simplify and rationalise business regulations, protect labour interests in case of closure of units, give incentives to SMEs and provide common infrastructure and improvised logistics and supply chains by creating clusters of manufacturing zones called the National Investment and Manufacturing Zones (NIMZ).

What does all this mean to you? If you run a manufacturing unit, you may be complying with as many as 70 laws and filing, perhaps, 100 returns a year to authorities. This has traditionally put-off entrepreneurs. The policy seeks to simplify or exempt some of these requirements. Obtaining clearances, especially for units in NIMZ, will be co-ordinated by a special purpose vehicle. Clearances will have timelines and will be deemed to be given if no decision is arrived at within the deadline. This law may be a boon for large-scale projects. While the clearance norms may not be less stringent, delays could be avoided.

Labour interest has also been kept in mind, at least in the case of units to be set up in the manufacturing zones. These units will have to provide for job loss compensation either though insurance or through a dedicated fund in case of closure of the plant. The SPV will also seek to find alternative employment for such workers in the same manufacturing zone or elsewhere. Private players will also be encouraged to set up their own training centres. They will get tax deductions of 150 per cent on the expenses incurred in setting up the centres. Importantly, the policy seeks to develop about 12 manufacturing clusters that will house manufacturers. While the State government will acquire such land; the Centre will bear the planning and infrastructure cost. Even as there is criticism about these proposed zones being a new avatar of Special Economic Zones, the NIMZ appears to be a different animal altogether. The proposed zones enjoy no unique tax benefits like SEZs. Unlike the SEZs where flourishing IT companies set up shops to milk incentives, the special zones are meant for manufacturers and aimed at boosting domestic growth and not necessarily exports.

Beneficiaries

With SMEs accounting for 45 per cent of the country's manufacturing, it is small wonder that the policy seeks to improve the state of this lot. The policy has come out with innovative ways of funding start-up SMEs.. If you are an aspiring entrepreneur, you can sell your property or land and get relief from capital gains tax if the same is invested in buying plant and machinery for your new start-up.

To encourage venture capital investment, VC funds registered with SEBI will get a tax pass-through status. This essentially means that the VC firm will not be taxed. Instead, the owners of the venture capital will be taxed individually. This avoids double taxation.

To improve access to high-end and expensive technology, SMEs can tap in to a patent pool (up to five years of patent) to be created and funded by the government or claim reimbursement up to Rs 20 lakh for technology acquisition costs. SMEs will also have access to fee-based services such as collection and payment of statutory dues, by organisations designated for this purpose.

Environment and energy friendly solution providers will also stand to gain from the policy. If you make equipment to generate solar, wind, bio or geothermal energy, energy-conserving lamps, smart-grid technologies or pollution filters you will receive incentives. This will be a 10 per cent capital subsidy and 5 per cent interest reimbursement.

Segments that use domestic critical technologies to make LED, solar energy equipments or fuel efficient transport system will also have a government procurement policy to keep demand ticking.

Challenges

The intent appears noble but one wonders how the basic issues of land, power and infrastructure linkages for the special zones would be tied. Only those states that have a ready land bank such as Gujarat or Andhra Pradesh will stand to benefit immediately. Acquisition of the minimum stipulated land of 5,000 acres will have to fall under the Land Acquisition law, recently made tougher.

There's also the the risk of lop-sided development, if manufacturing clusters are set up in select areas as hinted by the government. While captive power plants are allowed to be set up, the difficulty of access to key raw material — coal — remains. This trouble is compounded by the fact that physical infrastructure and utility linkages have to be provided within a year of the zone being notified.

Remember, the 100 million jobs that the policy seeks to create has to come, for the most part, from the new zones to be created. To this extent, your fortunes are interlinked to their success.

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