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Using the same hammer, yet again

Using the same hammer, yet again
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First Published: Thu, Dec 08 2011. 10 50 PM IST

By Jayachandran/Mint
By Jayachandran/Mint
Updated: Thu, Dec 08 2011. 10 50 PM IST
The government of India intends to increase the contribution of the manufacturing sector to the economic output of the country to 25% from 16% by 2022, Mint said in a 21 November report on the national manufacturing policy (NMP).
To achieve this vision, NMP assumes that the manufacturing sector should grow at a differential of 2-4% more than the overall economy. The policy aims to create 100 million new jobs by 2022 to impart appropriate skills among the poor to make growth inclusive, and to increase domestic “value addition” and technological “depth” in manufacturing. In the backdrop of anaemic growth in industrial production and the National Sample Survey Office (NSSO) findings on jobless growth, the policy document is of enormous import.
By Jayachandran/Mint
The government sets out its ambition to change the dynamics of the economy in NMP through rationalization and simplification of regulations, simple and expeditious exits for failed units, skill development, increased technological input from foreign collaborators and providing capital for growth. All this will be achieved through the establishment of manufacturing units within the proposed national investment and manufacturing zones (NIMZs), which will ease land acquisition. Though the document demonstrates an understanding of the many challenges faced by Indian industry, the solution given fails on multiple counts.
The first detailed chapter of the policy deals with the rationalization and simplification of business regulations. The document mentions that an average manufacturer files 100 returns annually and is governed by 70 laws and regulations, in addition to facing multiple inspections. The solution proposed is not to simplify, but to propose exemptions for the units set up within NIMZs. The corollary appears to be that it is fine for the existing manufacturers to be regulated heavily, while new units are freed up through exemptions. Another chapter on the exit mechanism shows a similar logic—ignoring existing units and their need for a wind-up, while providing a new exit mechanism through special purpose vehicles for units within NIMZs. Surely, the document has not forgotten that its ambitious targets are prefaced on the existing units growing at a healthy rate.
Where the document provides least information is in the analysis of the “demand” environment. It is “assumed” that some employment-intensive industries such as textiles, leather, gems and food processing will continue to drive manufacturing growth. There is little or no analysis on who will consume such output, both domestically and externally. With consumption decreasing in larger economies, surely one needs to review where demand for Indian manufactured goods will come from.
The policy document pays very little attention to “competition”. The document, in its preface, talks of the Asian economies and their powerful manufacturing engines but, except for a cursory mention of protecting domestic producers through appropriate trade policy instruments, there is little on what will make the Indian manufacturer unique.
The document acknowledges that the availability of energy and raw materials can become a stumbling block, yet it makes no further mention of steps to ensure adequate supply of these two key ingredients. The document refers to solar energy and energy conservation. However, for the growth envisaged over the next decade, it is not conceivable that these will yield an adequate supply of energy.
The policy revolves around the implementation of the NIMZ scheme, as evidenced by the bulk of the policy document coverage. The experience of special economic zones seems to have come in handy for the drafting of yet another zoning mechanism. One is reminded of the folk story of a carpenter with a hammer. His only solution to all carpentry problems is to use the hammer, no matter what the demand of the customer. This policy document, sadly, reads like a hammer, i.e. NIMZs, in search of a problem, rather than an answer to the manufacturing ambition.
The document’s basic assumption on the 2-4% “differential” rate of growth is also erroneous. The manufacturing sector has to consistently grow at a 4.5% differential rate of growth, if the 25% number needs to be achieved in fiscal 2022. Surely, the country deserves better homework to match such ambition.
Puranika Narayana Bhatta runs a management consulting firm <br></br>in Bangalore.
Comments are welcome at otherviews@livemint.com
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First Published: Thu, Dec 08 2011. 10 50 PM IST
More Topics: Manufacturing | NMP | IIP | Economy | India |