New industrial policy for India soon

Is it too late in the day?

Business & Politics

August 14, 2018

/ By / New Delhi

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As the 2019 general elections draw near, a new industrial policy is being finalised by the Modi government. This policy is much needed to modernise India’s factories, generate millions of jobs, achieve global standards and boost exports. But is it too late in the day?

With less than nine months to go for the next general elections in early 2019, India is drawing up plans for a new industrial policy to ramp up its manufacturing sector to the next level.
India’s over USD 2 trillion economy has overtaken France recently to become the world’s sixth-largest economy, and is expected to grow 7.4 pc in the fiscal year ending March 2019 and 7.6 pc in 2020.

The growth achieved by India is certainly not a surprise as it is the fastest growing economy in the world. However, the growth rate was slowed down due to two big disruptions—demonetisation and hiccups in the roll-out of Goods and Services Tax (GST) reforms.
Several global multilateral institutions have estimated that India will grow above eight per cent in the next decade overtaking Britain, Germany and Japan sequentially by 2030.

Favourable factors

A young nation with 877 million working people in the age group of 15 to 65, India has been attracting foreign direct investment in the service sector for more than two decades now. Other engines of growth include the continual rise of the middle class, with higher purchasing capacity and increasing urbanisation with urban population estimated to touch 843 million people by 2050.

Factory floors plagued

Despite the aforementioned factors, the share of the manufacturing sector in India’s gross domestic product (GDP) is merely 16 pc due to lack of proper infrastructure, investment and innovation. As a result, about 49 pc of the total labour force is engaged in agriculture, contributing less than 14 pc to GDP. Naturally, only few opportunities exist for those who want to enter the labour market.

Despite India overtaking France, the World Bank has warned that India’s manufacturing has shrunk to about 15 pc of the GDP, from a peak of 18.6 pc in 1995.  Other data shows new investments in India have dropped, and stalled projects are on the rise.

For instance, the Centre for Monitoring Indian Economy points out that new project investments have dropped to INR 6.62 trillion in the financial year ended March 2018, from INR 18.7 trillion in the 2015 fiscal.

Also, the value of stalled projects climbed to INR 7.63 trillion from INR 5.29 trillion during the same period.

Contours of a new industrial policy

To address these bottlenecks and boost exports, India needs to have a new industrial revolution. Towards this objective, a new blueprint is being prepared by the Commerce and Industry Ministry and is likely to be put before the Union Cabinet meeting soon. The meeting will be chaired by Prime Minister Narendra Modi.

Hinting at the long and much-awaited new industrial policy, Commerce and Industry minister Suresh Prabhu observed that it will make India ready for the fourth Industrial Revolution and beyond.

The proposed policy aims to revamp the 1991 Industrial Policy implemented by the P V Narasimha Rao government that junked the previous licence raj, which was hastily prepared when India was battling the balance of payment crisis. It will absorb elements of the 2011 national manufacturing policy and focus on technological issues of Industry 4.0, apart from furthering the government’s push of the Digital India initiative.

It will also have special provisions for manufacturing in the textile and leather sectors to leverage growth, and focus on spreading out export hubs across the country. These are currently concentrated in a few states, such as Tamil Nadu, Maharashtra, Gujarat, Karnataka and Telengana that account for 70 pc of India’s exports.

To be finalised by the Department of Industrial Promotion, the new policy will focus on competitiveness, sustainability and inclusion.

Significantly, it will also focus on reducing the cost of production and doing business on various counts, right from starting it and obtaining more than a dozen approvals.

The policy will also tackle high power-tariff rates for industry as opposed to distribution of electricity to homes and farms at a subsidised cost. Higher power tariff makes Indian products uncompetitive.

The policy proposes a direct benefit transfer (DBT) for electricity for households and agriculture. In other words, instead of subsidising the price of electricity, it will be provided at market price and subsidised through cash transfer.

The policy also aims to establish an overarching body with representation by the Centre and the states similar to the  GST council to enable swift decisions on key changes, such as the revamp of labour laws, taxation provisions and land leasing.

After the dismantling of the Planning Commission and subsequently the Five-Year Plans, the need for a new industrial policy is the need of the hour, to script India’s economy and its future.

Cambridge educated economist Dr Suvrokamal Dutta strongly believes that Modi administration had undertaken several reforms needed to overhaul the Indian economy. “The new industrial policy will be implemented immediately after its announcement. It will impact within six to seven months,” he asserts.

One wonders, with just a few months left for the 2019 general elections, will the policy find favour with different stakeholders.



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