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SANSAD TV: PERSPECTIVE- DECODING BUDGET 2022-23: MAKE IN INDIA ROADMAP

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Introduction:

Make in India Roadmap’. Manufacturing and MSME are crucial to India’s growth and this year’s Budget has several initiatives to promote India as a manufacturing hub in clean-tech manufacturing, and self-reliance in select sectors. This includes the extension of concessional tax regime of 15% tax for newly incorporated domestic manufacturing companies till 31 March 2024 , continuation of push for high-efficiency module manufacturing through the PLI scheme allocation of 19,500 crore rupees, promotion of Exports by replacing the existing Special Economic Zone (SEZ) policy with a new regulation and promotion of Private sector investments in the battery or energy-as-a-service concept for improving the EV ecosystem. The defence manufacturing sector is another large beneficiary of this year’s budget with 68% of the capital procurement budget being earmarked for the domestic industry in next financial year which should bolster investments in domestic manufacturing in this key sector. The Aatmanirbhar Bharat Abhiyan and Make in India initiatives have also got further fillip through the phasing out of concessions in the imports of capital goods for certain products where sufficient domestic manufacturing capacity is available.

Aatmanirbhar Bharat Abhiyan: the right impetus:

  • India could be their destination of choice, provided we offer a conducive environment.
  • A conducive business climate with better infrastructure and logistics, simplified land and labour laws and single window clearances can enable India to develop a robust manufacturing ecosystem.
  • This will help attract foreign capital, latest technology, create jobs and boost our exports.
  • We must also focus on Skill and Scale to be both quality and cost competitive and serve a global customer base.
  • Huge scope exists in sectors such as pharma, electronics, automobiles and defence machinery, not only to be self-reliant but also capture a decent slice of the global supply chain.

Reasons for slow growth in Make in India:

  • Ambitious targets: It set out too ambitious growth rates for the manufacturing sector to achieve. An annual growth rate of 12-14% is well beyond the capacity of the industrial sector.
  • Multiple targets: The initiative brought in too many sectors into its fold. This led to a loss of policy focus. Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy.
  • Excessive dependence on foreign capital: The policy relied too much on foreign capital for investment. Thus in the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.
  • Low Productivity: Productivity of Indian factories is low and workers have insufficient skills. McKinsey report states that Indian workers in the manufacturing sector are, on average, almost four and five times less productive than their counterparts in Thailand and China.
  • Complex Labour Laws: One of the major reasons behind small companies is the complicated labour regulations for plants with more than 100 employees. Government approval is required under the Industrial Disputes Act of 1947 before laying off any employees and the Contract Labour Act of 1970 requires government and employee approval for simple changes in an employee’s job description or duties.

Way Forward:

  • Investor’s confidence must be improved.
  • Improving physical infrastructure from transport systems to the power sector is essential.
  • Importance should be given to electronic sector.
  • Improve access to finance for smaller enterprises.
  • Making firm entry and exit easier.
  • Inverted duty structure.
  • Enhancing the flexibility of labour regulations.
  • Low-cost manufacturing is important for India.
  • If India has to raise its share of manufacturing in GDP to around 25%, industry will have to significantly step up its R&D expenditure. This must be addressed by the new industrial policy.
  • The quantum of value addition has to be increased at all levels. Larger the value addition, greater the positive externalities.
  • FDI policy requires a review to ensure that it facilitates greater technology transfer, leverages strategic linkages and innovation.
  • Aim for higher job creation in the formal sector and performance linked tax incentives.
  • Attractive remuneration to motivate people to join the manufacturing sector.
  • Need to have a curriculum that focuses on soft-skills and value-based training that meets the demands of the industry.

Conclusion:

  • Make in India and reforms that followed have led to an improvement in ‘Ease of Doing Business’ ranking. However, investments are yet to arrive.
  • The ‘Make in India’ programme may have the potential to transform India into a manufacturing hub but if we are to achieve that potential, the government would have to move beyond rhetoric to actual implementation of the announced policies.