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Informist, Friday, Jan. 24, 2025

 

By Krity Ambey and Priyasmita Dutta 

 

NEW DELHI – Notwithstanding the Narendra Modi government's focus on the manufacturing sector, a well-defined manufacturing policy is a crucial key still missing from India's growth story, according to Swadeshi Jagran Manch Co-Convenor Ashwani Mahajan. The government's schemes to support domestic manufacturing, including the production-linked incentive schemes, can give better results if India has a manufacturing policy in place, Mahajan said. 

 

"All the 14 sectors that we have identified for PLI schemes will go to waste unless we come up with a well-defined manufacturing policy," Mahajan said in an interview with Informist. Mahajan had put forth the suggestion for a manufacturing policy in a pre-Budget consultation with Finance Minister Nirmala Sitharaman last month, he said. 

 

With the aim of raising the manufacturing sector's contribution to India's GDP to 25%, the government had unveiled a National Manufacturing Policy in 2011, citing that the sector's contribution has stagnated at 15-16% since 1980. However, after the change of the government in 2014, this policy lost its relevance. Notably, the sector's contribution to gross vaalue added, or GVA, was 15.8% last year as well. 

 

POLICY PROTECTION

A well-defined manufacturing policy can give direction to the domestic industries and act as a commitment from the government that Indian products would not be replaced by cheaper imports, Mahajan said. "After the post-COVID recovery, our dependence on Chinese intermediates has increased manifold. To reduce undue dependence on certain economies, especially China, we need some efforts," he said. 

 

In a bid to push domestic manufacturing after the COVID-19 pandemic, the government announced PLI schemes for 14 sectors with an ambitious outlay of INR 1.97 trillion. However, even after almost five years from the announcement, disbursements have happened only in select sectors.

 

Citing the example of the PLI scheme in the information technology hardware sector, Mahajan said the scheme gained better traction after the government announced restrictions on the import of these goods. The government had in November 2023 announced that it would monitor the import of laptops, all-in-one personal computers, ultra-small form factor computers, and servers. The same month, the government also approved 27 companies, including Dell, Foxconn, HP, and Lenovo, under the IT hardware PLI scheme. 

 

"I would not advocate for protectionism, but wherever it is required...when companies have cost disadvantage, the government should consider tariff actions," Mahajan said. "There has to be a commitment from the government that wherever we need to raise tariffs, we would. Wherever we need to impose an anti-dumping duty, we would." 

 

Another advantage of a well-defined manufacturing policy is that it can act as a guiding principle for negotiations of trade agreements, Mahajan said. Such a policy can help government officials avoid one-sided agreements, Mahajan said. In fact, the commerce ministry also recognises the need for guiding principles for trade negotiations and has been working on formulating a comprehensive standard operating procedure to navigate through negotiations for trade pacts.

 

Swadeshi Jagran Manch, which advocates self-reliance, is part of the Sangh Parivar.

 

ECONOMIC ENCOURAGEMENT

Mahajan's call for a manufacturing policy comes at a time when private capital expenditure continues to be frail. He said that the private sector wants to invest, but they continue to have jitters from the cost disadvantage they have owing to the higher electricity tariffs, input costs and cesses.

 

To come forward in a big way, the private sector "needs clear-cut policy clarity, an indication that the government is committed to protecting you," Mahajan said. Currently, the private sector is deploying its funds in government bonds to avail higher and assured interest returns, which could be rerouted into "meaningful spending" if the government "incentivises" the sector, he said. 

 

In the recent past, multiple companies have said that their investments have been muted due to a slowdown in demand, especially in urban areas, but Mahajan thinks this is a blip as "demand is a cyclical affair." He also thinks that rather than giving income tax relief to boost consumption, the government needs to "support the middle class become more capable, and employable through skilling and support to micro, small and medium enterprises."

 

"The middle class has capacity and education. If we support them by promoting start-ups, by skilling, then more business opportunities will open up and that will improve demand," he said. Additionally, the government also needs resources, so lowering taxes will compromise on the government's coffers, Mahajan said. "For the government to spend, it needs more resources, and that comes from taxes," he said.  End

 

Edited by Akul Nishant Akhoury

 

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