India News and Features Alliance (INFA)

The first quarter of the current fiscal year shows that the manufacturing sector has registered a growth rate of more than 11 % and that this trend is likely to continue during the current fiscal. In fact, the manufacturing sector has revived in the last two years and is steadily growing. This is all good for the economy in the coming years, provided they are able to maintain and sustain its growth. As for the current fiscal year the overall growth rate will be above 6 %, because of the good performance of the manufacturing sector.

As the figures indicate the sectoral share in the GDP of the agricultural sector has gone down from 55.8% to 27.3% between 1951 and 2000, while that of the industrial sector for the same period has gone up from 15.2% to 25.6% and that of the service sector from 29% to 48.2%. However, it may be stated that during the reform period, the share of the industry in the GDP was on an average 24%. The investment in the manufacturing sector between April 2000 and April 2002 declined from 22.4% to 17.8%. Since then it might have gone up as the trend of the growth rate of the manufacturing sector shows.

It is common knowledge that apart from the agricultural sector, manufacturing sector is the backbone of any country. The fact the economies of USA, Japan and European countries are so strong because they have a very strong manufacturing base. Most of these countries are able to manufacture more than what they can consume in their own countries and then export it to other nations. It is a different thing that their manufacturing sector may not be growing at a very high rate as of now but it is a fact that they are strong nations because they have a strong manufacturing base.

After the introduction of economic reforms, the IT sector, especially the software industry, grew at a very rapid rate while the manufacturing sector suffered a bit as it had now to face competition from manufacturers from abroad. It was also a period of adjustment for the manufacturing sector to pull itself up and to reduce the production costs so that they could compete with the foreign manufacturers. This has now started paying dividends, as reflected in the relatively high growth of the manufacturing sector.

However, this is not enough. This sector has to emerge as an international player in the next 10 to 20 years and be counted along with Japan, South Korea, China and Europe. To achieve this, we shall have to go in a planned manner as the Koreans have done. It is this sector along with the agricultural sector, which can make us a developed nation.

The National Manufacturing Competitiveness Council (NMCC) has released its recent report on national strategy for manufacturing wherein it has identified factors which are coming in the way of increasing competitiveness of the Indian industry. One factor which has been identified is erratic electricity supply wherein the manufacturers lose about 8.4 % a year in their sales; second factor which has been identified is the existing rigid labour laws; third is scarcity of skilled labour; fourth is poor infrastructure; and fifth is the high tax regime especially the indirect taxes.

The interest rates in the past one decade have almost halved but it is not reflected in the competitiveness of the manufacturing units because of the above mentioned factors. We have not been able to carry out the electricity reforms. The unit cost of production of electricity in India is very high, compared to unit cost of production in other Asian countries. Unless we increase the output of electricity to meet our total requirements and at the same time reduce the unit cost production our manufacturing will not become competitive. An electricity shortage may thwart India’s rush to modernity, according to The Economist.

The labour reforms need to be carried out at the earliest as it has been stated a number of times in this column that these reforms can be carried out only by taking the labour force into confidence. But so far no Government at the centre has taken an initiative to start dialogue with the labour force in India. The report of the Second National Labour Commission has been put in the racks.

It may be noticed that only 3 % of the labour force is organized, while the rest is in the unorganized sector; and only this small percentage of the labour force in the organized sector is holding the labour reforms as they are organized into strong unions and are unwilling to discuss anything about labour reforms. This is an issue which the Government will have to face and must start a dialogue with the labour unions at the earliest.

As for the scarcity of the skilled labour it may be mentioned that India has the third largest technical manpower in the world and it is really surprising that we have a scarcity of skilled labour. It only means that we do not have the skilled manpower which we need, but skilled manpower which is outdated. Here again the Government and the labour must come together to resolve the issue. May be we need to reorient and revamp our education system.

As for the infrastructure, again we are moving ahead in certain segments like national highways but going backward in other segments like airports. Here again, to be competitive in the manufacturing sector we need world class infrastructure in the country, so that goods can move from one place to another much faster and without any hitch.

Finally, the indirect taxes, especially in the form of excise duties and custom duties are very high. It has been stated that China which manufactures product at 70% of the cost of Indian product, the Indian manufacturer has to pay on an average 15 per cent tax which makes the Indian goods less competitive than the Chinese goods. The time has come to revamp our indirect tax structure, so that we can manufacture our goods which can compete in the world.

The next year’s budget is still five months away and it is hoped that the Finance Minister will come out with a slew of measures to improve the productivity of the manufacturing sector so that 11 % growth rate of this sector is sustained and improved upon.---INFA.