Indian manufacturing has been provided a booster dose by the emergence of a global power struggle between the United State of America (U.S) and China. Increasing displays of expansionist intent by China have caused growing fissures in U.S-China relations. The fissures are having an economic spill over as manufacturing firms are attempting to reconfigure their manufacturing footprint from China. India, as a result, has been provided an enormous opportunity to hit the reset button on its manufacturing story. Indian manufacturing has, over the past two decades, remained an underachiever by promising much, but delivering little. Manufacturing, generating 15.3% of India’s GDP in 2000, now generates a marginally higher 17.4%. In the same period, manufacturing in countries such as Vietnam doubled its contribution to the GDP. In this backdrop, Prime Minister Narendra Modi’s call for an “Atmanirbhar Bharat” is significant. It reveals that New Delhi has taken cognizance of the opportunity provided by the emerging global power struggle for India to project itself as the destination of choice for firms looking to reconfigure their manufacturing footprint.
Three major strengths drive India’s attractiveness as a destination for manufacturing. A large pool of engineers, wages that are half of China’s and significant domestic consumption of manufactured goods, which is set to further increase in the future. India’s strategy for capitalizing on its strengths and catapulting itself into the orbit of manufacturing powers needs to be predicated on a short and long-term aim. Success in the former will act as a catalyst for success in the latter. In the short term, India must aim to cater to growing domestic demand for those domestic goods for which capacity and capability exist in India. This can only be done by increasing annual production from operational units engaging in raw material extraction and manufacturers engaging in finished good production. The Government of India must also partner with the industry during this phase by enacting reforms that boost ease of doing business in manufacturing in its entirety while ensuring that the ensuing growth across the manufacturing value chain is not at the expense of the environment. An evidence of this was seen in an action undertaken post the union budget. The MOEF and CC, on the 2nd of March, released a notification which allowed manufacturing units to increase per annum production beyond the limit specified in their environmental clearance. The notification went on to state that the incentive could only be used if the pollution caused by the manufacturing units remained below the limit in the present environmental clearance. In other words, manufacturing companies can now increase annual production over the limit prescribed in their environmental clearance if they invest capital in technology upgrades to ensure that overall pollution caused by the unit remains the same. The notification promotes growth in manufacturing output without compromising on environmental factors.
While the aforementioned step is welcome, it is partial in its coverage. Success in India’s aim of reducing import dependence can only fructify if ease of doing business reforms also encompass the manufacturing value chain in its entirety. The value chain comprises raw material producers (miners who extract raw materials from the earth) and manufacturers (use raw materials to produce finished goods). The notification covers only the latter. However, manufacturers in several industries will require raw material in greater quantities to increase their per annum production. The mining industry can cater to the increased raw material requirements of some constituents in the manufacturing sector.
The Union Government should consider expanding the ambit of the notification to cater to the entire value chain of manufacturing, and that includes mining. Expanding the ambit of the reform is likely to lead to a year on year increase in output across the manufacturing value chain. This will be a pivotal milestone in India’s journey to becoming Atmanirbhar in the manufacturing of those goods for which capacity and capability exist in India. India will also set itself apart from other 20th Century manufacturing powers by embracing an era of green growth driven by environmentally conscious industrial operations. The signal will provide a fillip to India’s long-term aim of attracting manufacturers who had previously overlooked the subcontinent, potentially heralding our arrival as a modern manufacturing power.