New Delhi: India has the potential to become a major manufacturing power with its stable democracy, skilled manpower and inexpensive labour. Yet, the manufacturing growth rate in the country is about half of that of its neighbour China. In the year to May 2008, China had recorded 16% growth in industrial production over the previous year. By comparison, India’s industrial output had grown by 7% in the year to April 2008 over the previous year. An Assocham study titled “Indian manufacturing ...aiming to achieve 15% sustainable growth,” says relative inefficiency, high infrastructure and transaction costs and paper work are the reasons India is lagging behind countries such as China and Brazil.
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The Assocham report says the high cost of borrowing is another impediment to manufacturing sector growth. It says while the average lending rates internationally range between 0.5% to 4%, in India they are as high as 12%. But Subir Gokarn, chief economist (Asia Pacific), Standard and Poor’s, says access to finance is a bigger problem than interest rates. He says what is required is “To create a channel of financing which allows entrepreneurs who have a viable project in manufacturing sector to actually raise money”. He adds that if infrastructure and flexible labour laws are in place, financing will cease to be a bottle neck.
In order to boost manufacturing growth, the industry body has forwarded a 20-point agenda to the government. The measures suggested include lowering interest rates and corporate tax and provision of better infrastructure. While calling for reducing corporate tax to 25% from 30% presently, Assocham has sought labour reforms, diversification in the existing export structure, emphasis on research and development, special concessions for agricultural products and reliable power supply.
But some industry leaders expect the much needed boost for manufacturing to come from another quarter. “India’s growth is now being taken up by foreigners. Lots of foreign investment is coming. GDP growth maybe 8% but foreign investment growth is more than 15%. These foreigners will invest in India, provide the job opportunities and manufacturing will grow,” says chairman of Videocon Industries Venugopal Dhoot.