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To revive manufacturing in India isn't easy as over the years we have lost ground in this area. Any policy will need a holistic approach. Several manufacturing companies have become just traders of branded goods made in China as it's a simpler business. The industry presently focuses on taxes, subsidies and grants in any policy but these sops are not enough to build a manufacturing ecosystem. The capitalist spirits of the entrepreneurs search for the highest valuations and maximum profits. This is where sops play a role as they help in increasing profits.
But manufacturing comes with other difficulties: there is a burden of labour, and capital is sunk in land and equipment. The opportunity cost of this capital is that if employed in trading or marketing it will give a quicker, surer and higher returns. This is the mindset and the outlook that has to be tackled if manufacturing has to become popular again. Realisation of the target of reviving the secondary sector of Indian Economy would entil various effortsby the government of India spreading across various spheres of Indian Economy. States, and not just the central government, have to be pulled into accepting this policy, as a state government has a much bigger role to play in it.
In this context the hurdles and possible solutions to the "MAKE IN INDIA' initiative can be discused in terms of following factors.
1. Smart Controls: Trading or imports of goods for mass consumption especially in the food, consumer goods, electrical products and light engineering goods needs to be controlled. Control cannot be physical barriers but smart barriers. A smart barrier for food, particularly processed imported food flooding our markets, is to have strong regulations on quality clearances. Chinese chocolates and candies flood Indian markets since importers presently do not have to take FDA permission.
2. Smartcities and Manufacturing clusters: Smart cities need to be combined with manufacturing clusters in a manner that creates liveable places for a workforce. Manufacturing does not exist in vacuum. It needs an ecosystem of labour markets, liveable spaces, and access to markets. The trouble with the government policy on Special Economic Zones was that it allowed builders and developers to create these islands which did not have all the components of an ecosystem.
3. Smart Taxation :Manufacturing constitutes just 16 per cent of the GDP but pays more excise duty than services which constitutes 60 per cent of GDP, and pays service taxes. Excise duty exemptions are region-specific or state benefits granted by the Centre. The trouble with an excise tax holiday is that it distorts the manufacturing landscape. Entrepreneurs use the tax benefit region for packaging and shipping and wait for the next region to be granted the benefit for planning their investment. This does not help anybody and has to change. Excise benefits need to be linked to the number of jobs created as a percentage of turnover and should not be region-specific. This would level the playing field and at the same time allow labour intensive SMEs to avail of these benefits. Moreover a tax holiday linked to region and a period also inhibits expansion in that location as the entrepreneur is closely watching for the next location of a tax holiday. 4.Power Infrastructure: Higher the value addition, the greater the usage of electricity in manufacturing. There is 60 per cent additional charge put on industry so that farmers can get free power for agriculture. Lack of power or captive power supply adds to the cost of production, reducing competitiveness. A much better model of charging for power has to be deployed so that manufacturing should not pay for giving subsidies to farmers. When a manufacturer has to set up a captive power unit, he wastes time and resources on it. A mid-sized manufacturer uses diesel gen-sets at least 15 days in a month. This is not a value addition activity but instead takes time and adds to the cost. The government is aware of the power problem but new capacity cannot be created quickly. Giving loans at softer rates to the units that set up captive power units, therefore might turn out to be an effective solution in this regard.
5. Cost of Logistics: Another subsidy that is borne by manufacturing sector is high freight rates. Manufacturing sector and the locations of manufacturing units is highly dependent on the cost of logistics. These rates cannot be raised endlessly by railways to subsidise passenger fares.
6. Land Acquisition: Another issue that affects both current and new manufacturing units is land. The previous government created the biggest bottleneck with its land acquisition bill, which makes land so expensive that it cannot be acquired for manufacturing. The only place land is available is in places that are uninhabited or barren, andthis does not make manufacturing attractive for labour. Cities dependent on manufacturing are no longer attracting the best employees as they are located in places where it is impossible for an ambitious youth to live. Even if an existing unit wants to expand, the state industrial development corporation cannot allocate him additional space. This is the problem across states with most state industrial development corporation having stopped providing services to their existing industrial parks. For example, in Haryana, the HSIDC, became an instrument for acquiring land and giving it out to builders.
Though a substantial number of investments have been committed and the government has taken several steps to improve ease of doing business in the country and cut down on red-tape, yet a lot of bottlenecks as mentioned above still need to be removed.The govenrment clearly seems to be looking at setting a long term debate and discussion on manufacturing. It is important for the states, Chief Ministers and politicians at the state level to be engaged and involved in this debate. A number of challenges for the manufacturing can only be implemented if state governments allow it.
Additionally, Caught in the insider-outsider mesh, the government will have to move quickly to remove ‘L’ hurdles (Land, Labour, Laws). Besides addressing the `Three Ls’, it has to conceive a `Stay in India’ package as well to retain talent in India.
By: Chandan Sharma ProfileResourcesReport error
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