UPA shifts gears, manufacturing to grow employment now

A big thrust to manufacturing is a highlight of the economic thinking reflected in the Economic Survey. This is seen as the key instrumentality to grow employment, in industry as well as in services.

With 80% weight on index of industrial production (IIP), resuscitation of the sector is crucial to obtaining the elusive 10% industrial growth, the economic survey suggests. (The IIP grew by 6.9% in 2003-04, as against 5.7% in 02-03 and 2.7% in 01-02.)
The UPA government, it seems, wouldn’t even mind an implicit negation of a few CMP pronouncements, if they run into a discord with the strategic push for industrial growth.

The economic survey,therefore, lists out five major factors that stifle industrial growth- a) reservation for small scale sector, b) high customs tariffs, c) rigidities in labour law acting as an impediment in building large firms and reaping the economies of scale and scope, d) friction faced in the creation and closure of firms in response to normal competitive market dynamics and e) distortions in the structure of indirect taxes, which affects resource allocation.

The survey then declares that the outlook for Indian industry would appear bright “if these impediments are removed.�

Even after the gradual reduction in peak customs duty to 20%, the country’s import tariffs are one of the highest in the world. The survey suggests that the tariff rates are to be trimmed further in the coming years. Reference to reservation of the SSI sector, as an “impediment� to industrial growth would appear to be incompatible with the CMP.

Obviously, the government wants to effectuate its commitment to the promoting and aiding the SSI sector by addressing issues such as inadequacy of affordable credit lines.

The Rs 10,000 crore Small and Medium Enterprises Fund announced by the NDA government is on the way.

The economic survey brings good news from the industrial investment front. After peaking at Rs 1,28,892 crore in 1999, commitment to industrial investments had declined in the next few years.

However, the investment intentions, as intimated to the government, increased to Rs 57,806 crore during January-April 04 compared to Rs 15,931 crore during the corresponding period of 2003.

Need for large scale capacity building and modernisation is being acutely felt in many industrial sectors such as textiles, petrochemicals, chemicals, polymers/plastics etc. The customs duty on capital equipment for these industries is being progressively reduced, to bring down the initial establishment costs.

The observations made by the government in the economic survey also suggest easing access to capital markets for new investments in manufacturing. Cost of funds would be further reduced by interest incentive/debt restructuring schemes as is now prevalent in many industries.