Home / Industry / Manufacturing /  Govt plans big boost for local manufacturing

New Delhi: The government has an ambitious plan to locally manufacture as many as 181 products India currently imports at a cost of at least $18.1 billion (around 1.1 trillion), according to documents reviewed by Mint.

The plan is in keeping with Prime Minister Narendra Modi’s Make In India programme to boost local manufacturing and create jobs. It could also help cut the country’s trade deficit.

The move could also help infrastructure sectors such as power, oil and gas, and automobile manufacturing that require large capital expenditure and revive the 1.85 trillion Indian capital goods business.

The products include gas compressors, parts of non-electric furnaces, filtering and purifying machinery, petroleum and gas well-drilling equipment, cotton-weaving machinery, brake linings, gearboxes, engines with a cylinder capacity of more than 250cc, parts of turbines, and parts of steam- and vapour-generating boilers.

As part of the exercise, the government may declare capital goods as a priority sector for lending at lower rates of interest and exempt locally made capital goods from excise duty, the documents show. The government could also abolish schemes relating to duty-free imports of capital goods, and strictly regulate the import of second-hand machinery that impact infrastructure sectors.

“The commerce ministry in association with the department of heavy industries has been tasked with preparing a policy paper on the same," said a top-ranking government official requesting anonymity. The paper will include strategy, goal and a road map for reducing India’s imports; the exercise’s importance can be gauged from the fact that its progress will be reported to the Prime Minister’s Office (PMO) on a quarterly basis.

The idea was first mooted by the PMO on 28 July.

According to the documents, the products were picked on the basis of a minimum level of imports, at least $100 million. The actual aggregate value of imports of the 181 products could be much higher.

An email questionnaire sent to the spokespersons of the department of heavy industries and the ministry of commerce on Monday remained unanswered at the time of going to press on Tuesday.

The focus on making locally, especially products related to the hydrocarbon sector, makes sense, said an analyst.

“What is Make In India? To me, it is trying to attack the big problem of import dependence. So, if you really want to do that, the first thing that you want to do is to attack your biggest import component, that is hydrocarbons," said Vikash Kumar Jain, investment analyst at CLSA India Ltd.

India’s merchandise exports contracted in October—the first time this fiscal year—exerting pressure on the country’s trade deficit. Although import growth was subdued, the trade deficit widened to $13.3 billion in October from $10.6 billion a year ago, according to data released by the commerce ministry. During the month, merchandise exports contracted 5% to $26 billion, mainly on account of sectors such as engineering goods, pharmaceuticals and cotton yarn. Imports grew 3.6% to $39 billion, with the growth moderating mainly on account of lower oil prices.

Both the department of heavy industries and the ministry of commerce are exploring ways to improve domestic production capacity for the items identified. They will also evaluate whether there is a need for providing subsidies, improving infrastructure to enhance production, and if there is a need for imposing duties on certain products or prescribing standards for their imports. The departments will also work on ensuring whether the domestic substitute presently available is of a desirable standard against imported products, the documents show.

“As the first step for such an exercise, an analysis has been done for the imports of the engineering goods," said a department of commerce note dated 4 September to the department of heavy industries. Mint has reviewed a copy of the note.

“The strategy to be evolved needs to be progressive in nature and compatible with global trends and may be categorized with short-term, medium-term and long-term measures," the note added.

Modi launched the Make In India campaign in September to attract investment and revive economic growth after sweeping to office in a landslide victory in May. Modi and his Bharatiya Janata Party have placed special emphasis on manufacturing, in which India lags vastly behind Asian economies such as China, to boost economic growth that slumped to sub-5% levels in each of the past two fiscal years. India has set for itself an ambitious target of increasing the contribution of manufacturing output to 25% of gross domestic product by 2025, from 16% now.

“We have also recommended that the government should encourage joint ventures in this area instead of allowing 100% foreign direct investments," said a department of heavy industries official who spoke on condition of anonymity.

Mint reported on 19 June that the National Democratic Alliance government is drawing up a 20,000 crore plan to boost localization of at least 10 key technologies in the capital goods sector. This was approved by the Union cabinet on 16 September.

The new government faces the task of reigniting investors’ interest in the capital goods sector, which has received a setback as companies struggled with high borrowing costs, delays in completing land acquisition and securing environmental clearances, and fuel shortages.

Its ability to do so will also be a function of its ability and intent to reform labour laws—where it has made some aspects of compliance and inspection easier—and also make it easier to do business in India. According to the latest ranking of the World Bank’s Doing Business Index, India ranks 142 among 189 countries in terms of the ease of doing business.

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