The manufacturing sector appears to be close to the Prime Minister, Dr Manmohan Singh’s heart.
He has, second time in less than four years, asked for a blueprint for propping up the growth of manufacturing industries.
Early last month, the PM constituted a high-powered group (HPG) under the chairmanship of public sector doyen, Dr V. Krishnamurthy for suggesting “policy measures and immediate steps to reverse the recent deceleration in the growth of the manufacturing industries.”
It is also required to prepare a road-map for sustaining the sector’s growth over the next 10-15 years as well as for boosting export of manufactured goods against the backdrop of an appreciating rupee and rising interest rates. HPG has specifically been asked to take a close look at labour-intensive sectors such as textiles, leather and handicraft.
Dr Krishnamurthy is Chairman of National Manufacturing Competitiveness Council (NMCC) that Dr Singh had constituted in 2004 shortly after taking over the reins of the UPA Government. The NMCC had drafted a National Strategy for Manufacturing (NSM) in September 2005. One hopes the group would first figure out what happened to its recipe mentioned in the NSM and other documents it has prepared since its incorporation.
• Quarterly results of corporates: Check out
The high-powered group should prod the Government to ignore the ‘tunnel vision’ and look at the economy as an integrated network with deepening linkages between agriculture, mining, manufacturing and services sectors.
The main problem with the Government is that it just cannot give up its old habit of picking and choosing certain industries within the manufacturing arena for special favours and neglecting the others as well as their backward and forward linkages with other sectors. We thus hear of packages for textiles segment, food processing industries, steel companies, semiconductor industry, power sector, etc, at different points of time.
This pick-and-choose strategy of dole-outs has all the ingredients of crony capitalism. It also results in inefficient use of Government money given away as tax concessions, interest rate cuts, special budgetary allocation and what have you.
Chain of segments
The Group should look at the economy as one continuous chain of segments, in which some serve as growth drivers at various times. Their function is similar to amplifiers or repeaters in the trunk telephone cables. It should spot growth drivers in all sectors, including stock market creations such as old economy and new economy. Having identified growth drivers such as automobile industry, construction industry and organised retail-cum-consumer finance, the Group should look at the backward and forward linkages of each growth driver.
Each growth engine serves the function of demand-pull for several products and services. If you drive the engine hard over a long haul, the demand for inter-linked industries gains momentum, resulting in investment down and up the value chain.
Paper industry
One can illustrate this out-of-box growth strategy by discussing a few instances in detail. Take the case of the paper industry, which is viewed as an old economy stock by stock-brokers, and a smokestack industry by environmental activists.
The paper industry can actually be transformed into a sunrise industry by factoring in its forward linkage with the Government thrust to education, especially primary education. Similarly, it can serve as prime mover for massive employment of landless masses through plantations of pulp-yielding trees on degraded lands across the countryside.
Paper-board also serves as eco-friendly and renewable material for packaging of goods. Abundant and competitive availability of paper-board can usher in packaging revolution apart from easing pressure on plastics and metals that can look for demand stimulation from other growth drivers such as automobiles and construction industries.
The Government can, for instance, reduce the price of books and stationery by rationalising the taxes on paper and its inputs. Lower taxes would empower the Government to spread over its allocation on education in setting up schools and colleges.
One thus finds merit in the Indian Paper Manufacturers’ Association’s (IPMA) plea to the Finance Ministry to reduce excise duty on paper to 8 per cent on all varieties of paper and paperboard from the present 12 per cent.
It is indeed surprising to learn that the paper industry is subject to direct and indirect tax burden of 20 per cent, even though paper is the primary input for education.
The high-powered group ought to recommend an imaginative plantations policy for degraded lands to employ millions of unemployed illiterate people in generating feedstock for paper industry, apart from growing inputs for fruit processing units and the bio-fuels industry.
Other sectors
Keeping in view the long gestation period of plantations, the Group should recommend reduction in import duty to zero per cent on woody raw material and waste paper. The country thus needs a holistic package for education-paper-plantations value chain.
Such a package would not only catalyse flow of $2.5 billion into expansion and modernisation of paper mills but also attract additional investments in plantations. And once the road-map for this growth engine is clear, the units dependent on paper industry such as chemical and printing plants can expect a big demand-pull.
What applies to paper applies equally well to the automobile sector. Each car manufacturer supports hundreds of auto ancillaries that serve as demand creators for metals, plastics and other materials. The car industry’s forward linkages in the form of organised retail, auto finance, petrol stations and maintenance service stations are too obvious to require elaboration.
The growth in the automobile sector also generates pressure on the Central, State and local administrations to expand and improve roads and bridges, thereby generating demand for cement, paints, bitumen, etc.
Similarly, the organised retail industry is now emerging as one of the largest employers next only to BPOs in the country. The emergence of this sector has a cascading effect on organised employment in large numbers. Also, by its very nature, the industry generates jobs amongst those sections of society which otherwise lack a high level of education and skills. The Government may, in fact, look for corrections in the policies and regulations relating to certain service sectors to revive certain domestic manufacturing industries. A case in point is the mobile telephone service business.
Examples of paper, automobile and telecom industries should serve as starting point for framing integrated and holistic economic growth strategies hitched to the economy’s growth drivers. It is high time policy-making came out of the straitjacket mode.
He has, second time in less than four years, asked for a blueprint for propping up the growth of manufacturing industries.
Early last month, the PM constituted a high-powered group (HPG) under the chairmanship of public sector doyen, Dr V. Krishnamurthy for suggesting “policy measures and immediate steps to reverse the recent deceleration in the growth of the manufacturing industries.”
It is also required to prepare a road-map for sustaining the sector’s growth over the next 10-15 years as well as for boosting export of manufactured goods against the backdrop of an appreciating rupee and rising interest rates. HPG has specifically been asked to take a close look at labour-intensive sectors such as textiles, leather and handicraft.
Dr Krishnamurthy is Chairman of National Manufacturing Competitiveness Council (NMCC) that Dr Singh had constituted in 2004 shortly after taking over the reins of the UPA Government. The NMCC had drafted a National Strategy for Manufacturing (NSM) in September 2005. One hopes the group would first figure out what happened to its recipe mentioned in the NSM and other documents it has prepared since its incorporation.
• Quarterly results of corporates: Check out
The high-powered group should prod the Government to ignore the ‘tunnel vision’ and look at the economy as an integrated network with deepening linkages between agriculture, mining, manufacturing and services sectors.
The main problem with the Government is that it just cannot give up its old habit of picking and choosing certain industries within the manufacturing arena for special favours and neglecting the others as well as their backward and forward linkages with other sectors. We thus hear of packages for textiles segment, food processing industries, steel companies, semiconductor industry, power sector, etc, at different points of time.
This pick-and-choose strategy of dole-outs has all the ingredients of crony capitalism. It also results in inefficient use of Government money given away as tax concessions, interest rate cuts, special budgetary allocation and what have you.
Chain of segments
The Group should look at the economy as one continuous chain of segments, in which some serve as growth drivers at various times. Their function is similar to amplifiers or repeaters in the trunk telephone cables. It should spot growth drivers in all sectors, including stock market creations such as old economy and new economy. Having identified growth drivers such as automobile industry, construction industry and organised retail-cum-consumer finance, the Group should look at the backward and forward linkages of each growth driver.
Each growth engine serves the function of demand-pull for several products and services. If you drive the engine hard over a long haul, the demand for inter-linked industries gains momentum, resulting in investment down and up the value chain.
Paper industry
One can illustrate this out-of-box growth strategy by discussing a few instances in detail. Take the case of the paper industry, which is viewed as an old economy stock by stock-brokers, and a smokestack industry by environmental activists.
The paper industry can actually be transformed into a sunrise industry by factoring in its forward linkage with the Government thrust to education, especially primary education. Similarly, it can serve as prime mover for massive employment of landless masses through plantations of pulp-yielding trees on degraded lands across the countryside.
Paper-board also serves as eco-friendly and renewable material for packaging of goods. Abundant and competitive availability of paper-board can usher in packaging revolution apart from easing pressure on plastics and metals that can look for demand stimulation from other growth drivers such as automobiles and construction industries.
The Government can, for instance, reduce the price of books and stationery by rationalising the taxes on paper and its inputs. Lower taxes would empower the Government to spread over its allocation on education in setting up schools and colleges.
One thus finds merit in the Indian Paper Manufacturers’ Association’s (IPMA) plea to the Finance Ministry to reduce excise duty on paper to 8 per cent on all varieties of paper and paperboard from the present 12 per cent.
It is indeed surprising to learn that the paper industry is subject to direct and indirect tax burden of 20 per cent, even though paper is the primary input for education.
The high-powered group ought to recommend an imaginative plantations policy for degraded lands to employ millions of unemployed illiterate people in generating feedstock for paper industry, apart from growing inputs for fruit processing units and the bio-fuels industry.
Other sectors
Keeping in view the long gestation period of plantations, the Group should recommend reduction in import duty to zero per cent on woody raw material and waste paper. The country thus needs a holistic package for education-paper-plantations value chain.
Such a package would not only catalyse flow of $2.5 billion into expansion and modernisation of paper mills but also attract additional investments in plantations. And once the road-map for this growth engine is clear, the units dependent on paper industry such as chemical and printing plants can expect a big demand-pull.
What applies to paper applies equally well to the automobile sector. Each car manufacturer supports hundreds of auto ancillaries that serve as demand creators for metals, plastics and other materials. The car industry’s forward linkages in the form of organised retail, auto finance, petrol stations and maintenance service stations are too obvious to require elaboration.
The growth in the automobile sector also generates pressure on the Central, State and local administrations to expand and improve roads and bridges, thereby generating demand for cement, paints, bitumen, etc.
Similarly, the organised retail industry is now emerging as one of the largest employers next only to BPOs in the country. The emergence of this sector has a cascading effect on organised employment in large numbers. Also, by its very nature, the industry generates jobs amongst those sections of society which otherwise lack a high level of education and skills. The Government may, in fact, look for corrections in the policies and regulations relating to certain service sectors to revive certain domestic manufacturing industries. A case in point is the mobile telephone service business.
Examples of paper, automobile and telecom industries should serve as starting point for framing integrated and holistic economic growth strategies hitched to the economy’s growth drivers. It is high time policy-making came out of the straitjacket mode.
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